China's Manufacturing PMI and Non-manufacturing BAI Continue to Expand in July 2018

On July 31, 2018, the Service Survey Center of the National Bureau of Statistics and China Federation of Logistics & Purchasing jointly released the Purchasing Managers' Index (PMI) of China. Senior statistician Zhao Qinghe from the Service Survey Center of the National Bureau of Statistics has interpreted the PMI performance.  

China's PMI continued to operate within the prosperity interval in July 2018. Such extreme weather conditions as heavy rainfall, typhoon and high temperature have taken place frequently, international trade frictions escalated, and some industries slipped into their production slack-season as usual. Due to the combined effect of these factors, PMI experienced some fluctuations but operated stably overall. The Chinese economy managed to maintain its momentum for continuous expansion as a whole.  

I. The manufacturing PMI has stayed within the prosperity interval.  

The manufacturing PMI stood at 51.2% in July. Despite a drop of 0.3 percentage point month on month, it has operated above 51.0% for five straight months. So the manufacturing sector continued to run within the prosperity range in a relatively stable way. Below are major highlights displayed this month. First, most sectors in the manufacturing industry maintained their expansion. Among the 21 surveyed sectors, 14 saw their PMIs operating within the expansion interval. Of these, the pharmaceutical manufacturing, special equipment manufacturing, railway, ship, and aviation and aerospace equipment manufacturing, and electrical machinery and equipment manufacturing managed to maintain their PMIs, which read 53.0% or above, within the high prosperity interval and kept growing fast. Second, both supply and demand continued to increase but the growth rate slowed down somewhat. Greatly affected by the adverse weather conditions, some industrial and mining enterprises in certain regions were forced to suspend productions this month. At the same time, a large number of companies entered into the phase of facility maintenance and technical transformation together. As a result, both production activities and market demand grew at a slower pace. The production index and the new orders index came at 53.0% and 52.3%, down 0.6 and 0.9 percentage point compared to the last month, respectively. Third, household consumption level went up, and consumable manufacturing expanded at a faster speed. The consumable manufacturing PMI stood at 52.4%, up 0.6 percentage point over the last month and 1.2 percentage points higher than the overall level of the manufacturing industry. In terms of major sectors, the food, wine, beverage, and refined tea manufacturing, the textiles, wearing apparels, and accessories manufacturing, and other manufacturing sectors saw their PMIs staying no lower than 53.0%, thus expanding rapidly. Fourth, price hikes started to shrink. As a result, some companies faced less pressure from cost increase. The purchasing price index and producer price index of major raw materials came at 54.3% and 50.5%, down 3.4 and 2.8 percentage points over the previous month. Both of them ended their continuous rise and started to drop. Of these, the ferrous metal smelting and rolling industry and the non-ferrous metal smelting and rolling industry saw the two indexes falling notably. Fifth, RMB exchange rate fluctuated more fiercely, and the index of import and export began going down. As shown by the surveying findings, the proportion of the companies this month that justified that their production and operation activities were impacted by the movements in RMB exchange rate to certain extent went up by 3.1 percentage points over the last month. Affected by the escalating international trade friction in recent term, some companies saw their export orders and imported raw materials both on the decline. The new export order index and the new import order index stood at 49.8% and 49.6%, both below the critical point.  

As revealed by related surveying findings, the fund and labor squeeze facing companies was eased somewhat. The proportion of companies suffering from the fund squeeze this month was 39.9%. The ratio ended its four-straight-month rise and started to fall. At the same time, the enterprises plagued by high cost and inadequate labor supply accounted for 38.7% and 15.6% of the total, down 1.0 and 1.4 percentage points over the last month, respectively.  

In terms of company size, PMI of large companies came at 52.4%, down 0.5 percentage point over the previous month and still remaining within the expansion interval, PMI of medium companies and that of small companies increased by 0.3 and 0.4 percentage point over the same period of last year to 49.9% and 49.3%, still below the critical point.  

II. The non-manufacturing business activity index (BAI) continues to operate within the high prosperity interval.  

The non-manufacturing BAI in July was 54.0%, 1.0 percentage point lower compared to the last month, remaining within the high prosperity interval of 54.0% and above for 11 consecutive months. This indicates that the non-manufacturing continues to grow fast.  

The service sectors kept expanding. The service BAI ended its stable rise in recent term and fell by 1.0 percentage point to 53.0% this month, indicating that the service sectors grew at a slower pace. Among the 20 surveyed sectors, 15 saw their BAI above the expansion interval. Of these, the railway transportation, aviation transportation, telecommunications, and other sectors generated BAIs of 60.0% or above, which stayed within the high prosperity interval, signaling a relatively fast expansion in business volume. Affected by the slowdown of production activities in manufacturing, frequent occurrence of typhoon and heavy rainfall, and other factors, the producer service sector and the logistics sector saw their BAIs standing at 55.8% and 52.8%, down 1.9 and 5.7 percentage points over the last month, marking their business volume grew at a slower pace. Driven by the continuously expanded market demand, the service prices picked up somewhat. The input price index and the sales price index stood at 53.2% and 51.6%, both up 1.1 percentage points over the last month. Of the two, the sales price index reached the highest level since this February.  

The construction sector witnessed its prosperity degree fell sharply. Since this July, affected by high temperature and heavy rainfall, the production and operation activities have ground to a halt in the construction sector. The construction BAI declined by 1.2 percentage points over the last month to 59.5% this month. From the perspective of demand and expectation, the new order index and the expected BAI of the construction sector stood at 56.4% and 64.1%, up 3.8 and 0.5 percentage point over the last month, respectively, signaling that the sector presented stably growing demands and continuously improved expectations.  

III. The comprehensive PMI output index expands at a slower pace.  

In July, the comprehensive PMI output index registered 53.6%, down 0.8 percentage point over the last month, which indicated that the production and operation activities of the Chinese companies in the current period continued to expand overall but at a slower pace. Of it, the manufacturing output index and the non-manufacturing BAI, as two components of the comprehensive PMI output index, registered 53.0% and 54.0%, respectively. Both went down somewhat compared with the last month.