CDT Money: Credit Where Credit Is Due

A key measure of Chinese manufacturing activity edged into positive territory last week, as the official Purchasing Managers Index (PMI) rose from a September level of 49.8 to 50.2 for October. The expansionary figure represents a three-month high, and one analyst told BBC News that “the return of the PMI to above 50 suggests economic momentum has indeed picked up”. Even HSBC’s unofficial PMI reading, which draws its data from private small and medium-sized enterprises as opposed to the official SOE-focused survey, hit an eight-month high despite remaining in contractionary territory. As The Wall Street Journal notes, both gauges now tightly straddle the 50 mark that delineates an expansion from a contraction. But has China’s factory sector really rebounded? Not so fast, according to The Financial Times’ Kate MacKenzie, who breaks down the individual components of the official PMI and sees a mixed underlying story. Input prices have jumped, and both new export orders and employment continue to contract (albeit both more slowly than in September). MacKenzie writes that such details “stand out to us as taking the shine off the overall positive figure”. The Wall Street Journal also scanned the analyst community and found a mixed reaction to the manufacturing data, though some wrote that the readings validated the government’s current approach to policy easing. As observers continue to debate the direction of the Chinese economy after September and third quarter data also generated cautious optimism, Peking University’s Michael Pettis remains at the center of the debate. The self-proclaimed “China skeptic” has long-highlighted the constraints of China’s growth engine and stressed the likelihood of  a sharp and necessary slowdown as the economy shifts away from an investment and export-led model, and this past week he took on two “China bulls” in separate conversations on the subject. NPR’s Rachel Martin ...
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