China: When good news is bad – VP Bank column

The official purchasing managers index for the manufacturing sector in China rose from 51 to 51.5 in September. The corresponding barometer for the service sector climbs from 55.2 to 55.9. The combined index (composite) rises from 54.5 to 55.1. The private survey for the manufacturing sector, the Caixin purchasing managers’ index, remains almost unchanged at 53 in September.

Measured against the consensus forecast, the rise in the purchasing managers’ indices came as a surprise. However, we had expected an increase. Because the Chinese economy benefited, and is still benefiting, from a corona-related special economic situation. When viewed broadly, the country’s economy is by no means running smoothly. Many Chinese plants and factories are underutilized due to difficult economic developments in the USA and Europe. The Middle Kingdom is also still a long way from normal economic conditions. But a “special boom” is making itself felt.

The car sales suggest that private households are keen to consume. But on closer inspection, this good data turns into bad. The Chinese prefer to get into their own car for fear of infection on public transport. The demand is additionally fueled by huge discounts from the car manufacturers. It is probably the fear of Covid-19 infection that lures consumers into the dealership, and less the desire.

Exports are also showing strong growth rates again. They are currently benefiting from an almost unmet demand for medical equipment. This includes all the hygiene products that are currently indispensable for us in daily life, i.e. above all masks, rubber gloves and disinfectants. China is currently supplying the world with hygiene products.

The export of medical equipment has been catapulted upwards in the past few months. In July, exports in this segment grew by almost 90% compared to the same month last year. In August there was still a plus of 72%. Even before the outbreak of the corona pandemic, China was a major global producer of hygiene products and was now able to quickly convert many factories. The pandemic-related goods have been the main driver of the recovery in exports in the past few months. In the other economic sectors, however, it looks mixed.

One of the best leading indicators that the global economy is returning to normal after the Covid shock will therefore be declining Chinese export growth figures. The rising purchasing manager indices are therefore bad news for the rest of the world. They are the best evidence that the coronavirus is still keeping the world in check. From this perspective, good news becomes bad.

Disclaimer: This text is a column of the VP Bank. 4investors is not responsible for the content of the column and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!


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