China’s economy could defy gravity for only so long. Based on the nation’s new PMI numbers, the global economic slowdown has undermined manufacturing there. This is likely to be the start of a slide that will take China’s expansion off it its 9% trajectory.
Numbers from HSBC’s China Manufacturing Purchasing Managers’ Index show that the preliminary version of the PMI’s output index fell to 49.2 in September. That is down from 50.2 in August, as well as below the 50 level that divides expansion from contraction.
China’s manufacturing numbers have remained relatively strong throughout the year. In the meantime, GDP growth in the U.S., UK and EU has been close to zero since mid-year. And the earthquake in March has hampered Japan’s economy.
One theory about China’s ongoing manufacturing growth was that the nation’s burgeoning middle class would begin to sharply increase consumption. But rapidly rising inflation likely has blunted the purchasing power of this group.
It is hard to say whether goods ordered in the spring to stock inventory in the developed world helped keep China’s factories busy. Orders placed in the summer were almost certainly much lower. And, there is no way to tell how much of China’s manufactured inventory sat on the nation’s docks or on its ships after being made in the early and middle part of the year.
It would be reasonable to believe that the China PMI numbers will worsen for the balance of 2011. The Chinese miracle of nearly double-digit GDP growth is about to disappear, as the People’s Republic faces the fact that its economy can only be isolated from the rest of the world for so long.
Douglas A. McIntyre
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