Chinese Caixin manufacturing PMI modestly lower in August

China’s Caixin manufacturing PMI edged down 0.2pp to 50.6 in August, slightly below market expectations. It is also the lowest reading since June last year. The performance of sub-indexes diverged. The production sub-index rose to 52.5, close to the top of its range in the past two years, while on the other hand, new orders sub-index fell to 50.6, the weakest level since May 2017. Employment deteriorated- the employment index moderated to 48.1 from 48.4 in July. The trade-related indicator improved very modestly in August, but still is close to the bottom of its range in the recent two years – the new export orders sub-index went up to 48.8, higher than 48.4 in July, but still much lower than the average reading of 50.3 in 1H of this year. Inflationary pressures increased – the output price index came in at 52.5 , vs. 51.6 in July, and the input price index rose to 55.9 in August, from 54.5 in July. Input inventories were re-stocked while output inventories were lower – the raw material inventories index increased 0.2pp to 50.3, but the finished goods inventory fell to 48.5 from 48.9.

In contrast to the official manufacturing PMI, the Caixin manufacturing PMI headline reading moderated. Although headline manufacturing PMIs released by the NBS and Caixin diverged in August, two of the most important sub-indexes are directionally consistent under these two surveys,  both production indexes rose while new orders indexes fell. We think this suggest manufacturing production growth likely remained healthy while new orders have probably softened on the margin, possibly on the back of weakening export growth. Looking ahead, we expect overall growth to decelerate gradually. We believe policy easing will continue to buffer the growth downside.T