China - June PMIs point to slowdown in services

China Macro: June PMIs show ongoing divergence

China’s PMIs for June point to some stabilisation in manufacturing, and a loss of momentum in services, as the reopening rebound fades. Regarding manufacturing, the official PMI published last Friday picked up a bit, to 49.0 (May: 48.8, consensus: 49.0), but remained below the neutral 50 mark separating expansion from contraction. Last Monday, Caixin’s manufacturing PMI came in a bit lower at 50.5 (May: 50.9), but remained above the neutral mark, and this outcome was somewhat better than expected (consensus: 50.0). The divergence between the two manufacturing PMIs was not only visible in the headline number, but also in the various subcomponents. Whereas the output component of the official PMI rose to above the neutral mark again, Caixin’s equivalent dropped back to 51.0 after a jump to 53.8 last month. On the demand side, the official PMI’s orders component stayed in contraction territory, while Caixin’s equivalent remained in expansion territory. There is also a big difference in the export subcomponent: the official one dropped to a five-month low of 46.4, whereas Caixin’s equivalent came in around the neutral 50 mark. The PMI survey from NBS is larger than Caixin’s one (samples of around 3200 and 650 firms, respectively), and has a stronger focus on the larger state-owned firms, whereas Caixin’s survey focuses more on private and export-oriented firms.

Services PMIs confirm reopening rebound is fading

Meanwhile, the services PMIs from both NBS and Caixin tell a clear story: the reopening rebound has faded and momentum in services growth is weakening again (although both services PMIs remain well above the neutral mark). The official non-manufacturing PMI dropped by more than a full point to 53.2 (June: 54.5, consensus: 53.7), the weakest reading since the Zero-Covid exit initiated in December 2022. And Caixin’s services PMI published this morning came in at 53.9, more than three points lower than in May (57.1) and also much weaker than expected (consensus: 56.2). Meanwhile, the composite PMIs (weighted averages of the output indices for manufacturing and services) from both NBS and Caixin came down further, although remaining in expansion territory as well. The official composite PMI dropped to 52.3 in June (May: 52.9), while Caixin’s composite PMI fell by three points to 52.5 (May: 55.6). All told, China’s recovery has clearly faltered, and we have cut our annual growth forecast to 5.7% (from 6.0%). We expect more piecemeal monetary easing, and targeted fiscal support to stabilise the property sector and support domestic demand, also see the China update in our June Global Monthly here.