Non-manufacturing PMI

The increase seen in China's official non-manufacturing purchasing managers' index for August is showing a silver lining to the cloud that was cast over the country's economic prospects by an exceptionally low manufacturing index.

Yet, before we can confidently say the economy is bottoming out, we need to see economic data for the coming month.

The non-manufacturing PMI stood at 56.3 in August, up slightly from July's 55.6. The index tracks activity in the retail, aviation, software, real estate and construction industries.

At the least, the increases indicate that China's services industry has managed to weather the economic slowdown, which resulted in 7.6 percent year-on-year growth in GDP in the second quarter of 2012, the lowest rate of increase in three years.

The higher August reading is also helping to alleviate the worries of people who think the country's economy is continuing to deteriorate. Such concerns were further stoked by the National Bureau of Statistics' announcement on Saturday that the August manufacturing PMI had hit a nine-month low of 49.2. A reading above 50 indicates expansion and one below contraction.

A sub-index for new orders in the construction sector, in particular, has shown month-on-month increases in two consecutive months, indicating that the larger investments made in recent months may be starting to bolster the economy.

Yet, risks remain.

Economic difficulties aside, the non-manufacturing index itself is well below the 10-month high of 58 it showed in March. And some of its sub-indices, such as the one tracking new orders, declined to 52.7 from 53.2 in July.

Moreover, a reading for a single month does not necessarily reveal a trend. More time is needed to monitor the services sector to see if it can be a strong foundation for the struggling economy.

With the manufacturing PMI dropping lower in August, the country is likely to take more targeted measures to boost its manufacturing sectors and, in the meantime, put more resources toward keeping the services sector going.

The economic data for September will therefore be very important, as they will give policymakers a sense of how well existing pro-growth measures have succeeded and if, in the case conditions continue to worsen, more measures need to be taken to bail out the economy.

(China Daily 09/04/2012 page8)