Will Upcoming Chinese PMIs Show Slowdown?

China’s economy is facing a problem as the rest of the world’s economies look towards opening up.

Until now, much of retail in Europe and America was either closed, restricted or subject to closure from anti-COVID measures. This logically put pressure on Chinese manufacturers who had to struggle in addition to logistics issues.

With US consumers coming back to the market, and the backlog of containers in the US being processed, it might seem that large Chinese companies would be looking at smoother sailing.

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But, the massive stimulus to keep the economy going during the pandemic has pushed up the price of raw materials. Even if companies are able to project increasing customers, they might be slow to buy materials to avoid having to tie up money in inventory.

Additionally, many US firms have moved online, reducing their need to hold inventory.

It’s all a little complicated

Inventory and raw material costs aren’t the only factors at play. However, they are an often forgotten subject that might explain why a booming economy might not translate into as much optimism for large manufacturers.

This could have flow-through effects on Japanese and Chinese suppliers to China. The Aussie dollar might be among the most affected if PMI data out of China disappoints.

Many investors have priced in the expectation of increased demand as major economies reopen. However, Chinese PMI data has been on the decline for several months, despite improving COVID case numbers.

It might mean that commodity prices and the currencies that rely on them are overpriced. On the other hand, they might get a bit of a boost if Chinese manufacturers break the trend and finally start showing some confidence.

What we are looking for

Bracketing the weekend, we have the official PMI figures from the NBS on Friday. This contrasts with the private Caixin survey published on Monday.

The NBS tracks larger firms with more heavy investment (and support) from the government. And it has been trending broadly flat through the pandemic. It’s the Caixin survey with smaller, more export-facing companies that has been declining.

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