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China's Official PMI's for February all worsened andmissed expectations, highlighting the weakness of the economy and the weight of debt in relation to its economy. The debt load is expected to climb by three to four percentage points in it's the debt-to-GDP ratio.

China NBS PMI Feb 2019

China Offical NBS Manufacturing PMI

  • NBS Manufacturing PMI 49.2 expected 49.5, prior 49.5
  • NBS Non-Manufacturing PMI 54.3 expected 54.5, prior 54.7
  • NBS Composite PMI 52.4 expected 52.6, prior 53.2

Manufacturing saw the third consecutive month in contraction to a three year low with the trade war affected export performance weighing amidst the tensions with the US. Worrying aso is that domestic demand is also faltering. Services PMI came in lower in in February after a 2 month rebound with a cooling property market and struggling domestic demand.

We should note that these reports are amid a series of Lunar New Year holidays, with output (49.5 vs 50.9 in January), new export sales (45.2 vs 46.9), and employment (47.5 vs 47.8) all declining. So be wary of distortions around lunar new year, a hazard for January and February China data. 

There was Positive News With New Orders and Business Sentiment

A positive however with new orders increasing for the first time since November 2018 (50.6 vs 49.6).  Input prices rose sharply, which was the first increase in three months (51.9 vs 46.3), while output charges went up noticeably (48.5 vs 44.5). Business sentiment strengthened to its highest in four months (56.2 vs 52.5).

Business Confidence in China averaged 51.89 Index Points from 2005 until 2019, reaching an all time high of 59.20 Index Points in April of 2008 and a record low of 38.80 Index Points in November of 2008.

Beijing has been trying to reduce its reliance on debt, but the trade war is holding it back, hurting growth in it's economy as the latest purchasing managers reports show. 

The trade war, which has been hit by U.S. tariffs on Chinese exports. Oxford Economics Head Asia Economics Louis Kuijs said in a note last week. "By second quarter of this year, we think that real economic activity will start to improve, given that easing (will) start to work." "Banks extended a record 3.57 trillion yuan ($530 billion) in new loans in January, which reflected "pressure from the authorities to raise lending to the corporate sector, especially the private sector," Kujis said.

Morgan Stanley's Xing said. "The economy is still quite weak in first quarter ... however we're seeing intensified easing efforts from the policy makers," he said. "By second quarter of this year, we think that real economic activity will start to improve, given that easing (will) start to work." Clearlyt heir are hoped of a deal to end the trade war in all these staements but as these PMI's show and other economic reports the economy is laggard and debt is building.

Source: Reuters, Trading Economics

From The TradersCommunity Research Desk

 

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