China PMI, whether you believe it or not…

by SR on February 2, 2012

The China manufacturing PMI for January 2012 was announced on 1 February. Even for somebody who doesn’t specialise in Chinese economics this indicator looks to have a few problems. Not only is it relatively new (it began in June 2005) but it uses as a base a sample of just 800 companies which, for an economy the size of China, feels way too small. Apparently the compilers plan to expand this sample size to 3,000 companies at some point, which would be a step forward. Others feel that the point is academic because the economic data emanating from China is already of such poor quality that it cannot be used as-is, with one observer even suggesting in this article that the US should estimate its own statistics for China rather than rely on the official version.

China_manufacturing_PMI_arranged_by_year

The figure for January 2012 – shown by the red dot on the left – was 50.5, up from 50.3 in December 2011 and 49.0 in November 2011, as shown by the pink line, so in theory it’s a “good” figure. What strikes me when comparing this to prior years is that even if the data is being manipulated, it’s still very weak. The previous two months just mentioned aside, only in 2008 (black line) and in the first two months of 2009 (brown line) have we seen worse figures than this latest 50.5 for January 2012.

If the reality is worse than the official PMI figure, what does that say about the demand prospects for auto, machinery and other industrial sectors in China in 2012?

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