China: Is it true that manufacturing has recovered? – ING

Following upbeat prints of China’s official Manufacturing Purchasing Manager Index (PMI) for November, ING came out with its analysis to reiterate its previous forecast concerning the world’s second-largest economy.

Key quotes

China's manufacturing PMI has moved back above 50, reflecting that manufacturing activity has improved from contraction to expansion. Is this the full picture?

Official manufacturing PMI jumped to 50.2 in November, after 6 consecutive months below 50.

New domestic orders (51.3) are the main support for growth, which is in contrast to new export orders which remain in contraction (48.8). We expected some improvement in domestic new orders, but the data has surprised us by coming earlier than our expectations. One of the major pushed of new orders is that infrastructure investment has moved from the investment stage to the production stage. This will continue to give support to new orders in the coming year.

New export orders continued in contraction (48.8). There has been some improvement from the previous month (47.0) but export orders have now been in contraction for 18 months consecutively. Tariffs have pushed down selling prices from factories since May (with the exception of October, which was the month of new smartphone release).

We have expressed several times that infrastructure investment will move from the investment stage to the production stage. The opposing force from tariffs will persist. The data confirms our view. And therefore we don't need to change our forecasts for the time being.

We expect China's Gross Domestic Product (GDP) will reach 6.2% in 2019 with USD/CNY at 7.0 by the end of 2019.