Analysis of November HSBC China PMI, OECD Leading Indicator Trending Down Since February (Charts)

From the November HSBC China Manufacturing PMI release at (the service sector and composite output PMI declined, see below):

"The Chinese manufacturing sector strengthened further in November, with overall business conditions improving at the strongest pace in eight months. This was signalled by the headline HSBC Purchasing Managers’ IndexTM (PMITM) posting 55.3, up from 54.8 in October. Considerable price pressures were also indicated by November’s survey, with both output and input prices rising at substantial and accelerated rates."

A read above 50 means the Chinese manufacturing sector is growing. Under 50 means contracting. Price pressures were expected as consumer prices in China rose 4.4% in October, a 25 month high. Also read: China 'set to tighten monetary policy' (BBC News 12/3/2010). In a similar fashion, the official China PMI reported by the "China Federation of Logistics & Purchasing and National Bureau of Statistics" hit 55.2 in November, up from 54.7 in October. See the chart and data at - CPMINDX.

The service side of the equation wasn't great. The HSBC China Service Sector PMI in November declined to 53.1 from 56.4 in October. The overall HSBC Composite Output PMI (manufacturing + services) was at 55.8 in November, down from 57.4 in October.

Albert Edwards, a Societe Generale strategist who is bearish on emerging markets, put out a report with a chart showing a steep divergence between the China OECD Leading Indicator and the Thomson Reuters Commodity Price Index (CCI or former CRB). See the chart at Business Insider.

"The last time China's leading indicator was this weak, the commodity bubble was about to burst" (the commodity index is testing the 2008 high).

I seeked out the OECD data for China at and the trend has been down since February 2010 (September 2010 was the last month reported). Does something need to give here? And how will "prudent" management of monetary policy affect China's growth in 2011. (BBC).

OECD - China Leading Indicators Composite

MonthOECD - China Composite Leading Indicator


  1. I have read about the SocGen report. yes that OECD index was showing weakness, but the last reading is almost 3 months old now, so it would be interesting to see how things has changed over the past 2 months. However, if the sign of weakening persists, it's actually a sign of stagflation for China.

  2. Good point. So do you consider the OECD report a lagging indicator? How far does it see into the future. I thought it was interesting that the SocGen report mentioned this. And it did eventually prick the commodity bubble, or growth globally, in mid-2008 after diverging with the CCI since early 2007. Probably combined with the U.S. housing->financial crisis...

    Here is the November 8. release for the month of September.

    "OECD composite leading indicators point to diverging growth patterns in
    major economies"

  3. I am not really sure how far it sees. As we saw in the latest manufacturing PMI in China, it seems that the growth is robust. So there is chance that the slow down in a few months ago was temporary, just like the case in US. Though if the Chinese economy does slow down more, it would mean a tricky stagflation condition.


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