This is becoming almost sad to watch. China has been the focus of many to look for signs of a global economy starting to pick up. China, of course, being the fastest growing economy and the second largest in the world, and the largest export nation, is a good one to watch. But, one should know what to watch for, or you’ll end up fooling yourself.
China’s official manufacturing purchasing managers’ index held steady in December at 50.6, matching November’s seven-month high, as growth in new orders was unchanged and the pace of output softened marginally.
With the main index above 50 for three straight months, the survey indicates that China’s vast factory sector is expanding. The official PMI was released a day after a similar survey by HSBC suggested manufacturing activity at its strongest since May 2011.
This, on the surface would seem like good news. But, here’s some additional news…..
The official PMI reading was slightly below expectations in a poll of economists by Reuters last week that predicted a rise in the PMI to 51.0.
A new export orders sub-index fell to 50 from 50.2 in November. A PMI reading below 50 suggests growth slowed, while a number above 50 indicates accelerating growth.
And, finally, here’s the money shot.
“It’s pretty clear that it’s more driven by infrastructure and increasingly housing, that’s driving heavy industry,” said Zhang Zhiwei of Nomura International, speaking on Monday.
Rising land prices have prompted widespread expectations that the real estate market will be revived by an investment-driven recovery that would offset weak export markets, even though the central government had pledged to maintain investment and purchasing restrictions to try to control prices.
Railway spending delayed from earlier in 2012 was being rushed out before the end of the year, and rising prices for land purchased by state-owned developers could point to a relaxation in property market curbs that has yet to be made official, Zhang argued.
The growth in the PMI isn’t reflective of the global economy, it is reflective of China’s internal workings. More over, it isn’t even really reflective of any economic strength more than it is some stupid budget process and a housing market which may or may not be good for China’s economy.
This isn’t good news, this is bad news. The export PMI dropped to dead even 50. Given the weakness of the holiday retail sales of the US and Europe, this doesn’t bode well for increasing China’s export PMI.
For people looking for a good sign of a healthy global economy….. well, stop it, it isn’t going to happen. But, if it were to happen, you might see something like increased exports from a large economy without the debasing of their currency.