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SIGNS OF LIFE IN CHINESE ECONOMY ARE NO GUARANTEE OF RECOVERY

02-12-2016
by 
in 
Industrial production has stabilised in China

The old adage that when the USA sneezes the world catches a cold may well still hold true. But, for Australia at least, in recent years the sneezes and sniffles that have been the most contagious have come from China.

However, this week the patient has shown some signs of recovery. The release of the official China PMI (purchasing managers’ index) figure of 51.2 for October was not only up on the previous month’s figure, it was well ahead of expectations. Indeed, it was the highest for two years.

And that improvement could well be rubbing off on Australia, with this week’s Australian PMI released by the Ai Group increasing by 3.3 points to 54.2 in November.

However, further reports originating from China council caution and suggest that the basic PMI figures may only indicate brief remission from the underlying disease.

The figures come from a new survey released by the Cheung Kong Graduate School of Business (CKGSB) - China's first faculty-governed and independent business school.

The detailed report, conducted by the CKGSB’s Professor Gan Jie, directly surveyed more than 2000 Chinese companies, and this indicated that China's industrial economy has not yet stabilised. Both the Business Sentiment Index and employment index from the report came in at less than 50 for Q3, indicating that the economy is contracting.

On the plus side, though, the report did conclude that after seven quarters of continuous decline, production has stabilised, thanks to an increase in output of consumer goods. However, it also concluded that weak demand and overcapacity continue to dominate the Chinese industrial landscape.

So while the patient would appear to have stabilised, reports of a recovery would appear to be premature.

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