Little Treat Before Tomorrow’s Chinese PMI’s

So I do some ongoing side work for investment clients interested in getting more technical information on the Chinese economy.  I don’t post much of it here for numbers of reasons but definitely draw inspiration from some of that work and do use some of what I do as blog posts.  From time to time, when the mood strikes me, I may drop some of this research on to the blog for the more data interested reader.  I should emphasize, I won’t be doing this on a regular basis.

I have developed some data indicators that will come from more high frequency and granular points than the more opinion like poll like nature of the PMIs.  This report uses actual operating data from actual Chinese industries that is as current as a couple days ago.

Based upon the data I’m seeing, I think there is a high probability we will see at least a stabilization in PMI’s and most likely an uptick in PMI’s.  There has been a pretty clear increase in operating rates and capacity utilization across Chinese industry from basic PTA straight through to heavy sectors like steel and coal.  Whether or not this will be sustained or whether this is more of a post-Chinese New Year bump, remains to be seen but the evidence is pretty clear that we should expect to see positive PMI numbers tomorrow.

Couple quick notes, this data is compiled at a variety of intervals and in some cases daily but is quite recent.  Furthermore, it is compiled by industry groups or companies and shows much greater variance (read: it isn’t a straight line like official data) so even if it is not perfectly accurate it should give us a much better idea about the direction of industry even if the levels may not be perfectly accurate.

Most Chinese industry remains at very low rates of operation.  If most industrial investments require operating rates upwards of 80% to be profitable due to the large capital costs, there is almost no specific industry that would be considered profitable.  There is simply massive over capacity all throughout Chinese industry.

This uptick in activity seems to correlate with other evidence of a quiet stimulus and growth in credit.  That is not a long term positive but this seems to be what is likely driving this uptick in operations.

I am skeptical this will be a sustained increase and is more likely due to season factors of returning to work and the stimulus but as my kids remind me: I have been wrong before.

You can find the file here.

2 thoughts on “Little Treat Before Tomorrow’s Chinese PMI’s

  1. Thank you for presenting this research!

    Could you please attempt some speculation on what a “hidden” or “quiet” stimulus might look like for the involved industrial companies?

    • There is definitely some evidence of increased government spending targeting more infrastructure investment. There is also expectation of this after the NPC with announcements of more infrastructure investment. This seems to match the uptick in capacity utilization since about December or the first of the year. Given the industries presented in the report, there would seem to be a close relationship and fit the other data we have seen on credit creation and public spending.

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