Via Capital Economics:
• The latest survey data suggest that conditions in industry remained broadly stable last month. But we still think that growth will slow during the next few quarters, even though the immediate threat of additional US tariffs has receded.
• The Caixin manufacturing PMI edged up from 50.1 to 50.2 in November. This was stronger than anticipated (the Bloomberg median was 50.1, our forecast was 49.8) but still points to relatively subdued activity. It is consistent with growth on the China Activity Proxy – our in-house alternative to the official GDP figures – of around 5%, slightly below recent readings. The official manufacturing PMI, which was published on Friday and dropped to its lowest level in over two years, paints a similar picture. (See Chart 1.)
• The improvement in the Caixin index was driven by a rise in the new orders component, hinting at stronger domestic demand. (See Chart 2.) In contrast, the export orders index dropped back last month which, at face value, points toward weaker foreign demand. However, the hard export data have so far defied the downbeat signals from the survey data, which appear to reflect negative sentiment about future demand rather than current conditions. (See Chart 3.)
• Sentiment among exporters may improve during the next couple of months thanks to the tariff ceasefire agreed to by Trump and Xi over the weekend. While this may help to buoy the PMIs temporarily, we doubt it will prevent China’s economy from slowing in the coming quarters. Exports still look set to slow as global growth cools, even if trade negotiations end in a lasting deal. And despite November’s betterthan-expected Caixin PMI reading, we are sceptical that domestic headwinds have now abated. If anything, the drags from a cooling property market and slower credit growth are likely to intensify in the coming months. (See Chart 4.)