No sign of economy rebalancing in latest China PMIs

January 6, 2016

China's Huang Qiushuang performs on the balance beam during the women's gymnastics team final in the North Greenwich Arena at the London 2012 Olympic Games July 31, 2012.   REUTERS/Mark Blinch (BRITAIN  - Tags: SPORT OLYMPICS SPORT GYMNASTICS)   - RTR35RC6

Chinese manufacturing has been in the dumps for a long while. But that was supposed to be offset by a government-induced shift in the economy toward domestic consumption, which underpins Beijing’s optimistic outlook for growth this year.

The latest set of survey data from Caixin, compiled by Markit, are the clearest sign to date that policy isn’t working yet.

While manufacturing continued to contract, services growth nearly ground to a halt, which brought down the composite measure for the wider services and manufacturing components of the economy to something suggesting no growth momentum at all.

Caixin output PMI - Markit

Caixin said in its latest release:

… the rate of service sector activity growth eased to a fractional pace, with the Caixin China General Services Business Activity Index posting just over the no-change 50.0 mark at 50.2 in December, down from 51.2 in the previous month. Furthermore, this was the second-lowest index reading since the series began in November 2005 (behind July 2014).

Most economic commentators pay little attention to services gauges of the vast Chinese economy, because they have a relatively short track record, and because by nature such data is tough to take as definitively representative of such a vast economy spread over a huge geographical area covering a population of more than a billion people.

But it would be foolish to ignore the trend.

Magnus on China

Caixin added in the release:

Furthermore, recruitment at services companies did not offset further job shedding in the goods-producing sector, and led composite employment to fall for the seventh month in a row, albeit marginally.

Services were meant to do the offsetting. So far they are not.

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