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Early Forecasts Show China Economy Stabilizing in October
Perspective | 28 October 2015
  • With no more flash PMI, less-known indicators help fill void
  • Box office receipts still strong, but coal consumption is weak

With a preliminary reading of the manufacturing industry scrapped this month by Markit Economics and Caixin Media, analysts must search a bit harder for the pulse of the world’s second-largest economy. Early signs suggest stabilization.

Domestically compiled gauges of manufacturing and services improved in October, while an index based on search engine data for small and medium-sized businesses weakened slightly. They come ahead of official Purchasing Managers’ Indexes for manufacturing and services, both due Sunday.

The People’s Bank of China cut interest rates for the sixth time in a year last week amid mounting challenges to the government’s growth target of about 7 percent for 2015. As economists set their forecasts for future policy moves, here are a few early indicators that may help:

Minxin PMI

The unofficial purchasing managers indexes jointly compiled by China Minsheng Banking Corp. and the China Academy of New Supply-side Economics showed a much sharper slowdown in the summer and a faster pickup since then.

The manufacturing reading rose to 43.3 this month from 43 in September, while the non-manufacturing measure climbed to 44.2 from 42.3. PMI readings below 50 signal contraction.

Jia Kang, director of the Beijing-based academy and former head of the finance ministry’s research institute, expects more attention will shift to the Minxin gauge after Caixin stopped publishing its flash PMI.

“This is a very sensitive indicator,” Jia said. “When the official PMI was still steady, we already noticed a downward trend,” and now the gauge has reversed to signal a pickup.

The monthly surveys cover purchasing managers at more than 4,000 companies, mainly private business and smaller enterprises. The gauges started in October 2014.

In contrast to the official measure, which has shown non-manufacturing businesses holding up better this year, services are also mired in contraction zone in the private survey.

Baidu Blues

Momentum of small- and medium-sized enterprises, which contribute about 60 percent of China’s economy, slid slightly in October from September’s final reading, according to a preliminary reading of an index from Beijing-based Baidu Inc., which handles more than 6 billion searches a day.

While the gauge of search interest in SMEs has recovered from August’s record low, it has stayed in “slightly depressed” territory since March. By sector, demand for home appliances, mechanics and Internet networks weighted on the overall reading.

    Other Tea Leaves

  • MNI China Business Indicator, released by Market News International in New York, demonstrated a pickup this month. The reading, based on a survey of around 200 companies listed on either the Shanghai or Shenzhen stock exchanges, shows conditions of both manufacturing and services firms.
  • The Westpac MNI China Consumer Sentiment Indicator showed confidence in the economy sank to a record low this month. The measure, with data back to 2007, is based on at least 1,000 telephone interviews conducted in 30 cities each month.
  • Weekly box office data supplied by showcase the steadily rising power of China’s consumers. October sales have been boosted by domestically produced blockbusters during the Oct. 1 to 7 “Golden Week” holiday.
  • Coal consumption by China’s six major electric plants is released daily, giving an early indication of power output and conditions at energy-hungry industries. “There’s been a pretty sharp drop” from a year earlier, according to Zhou Hao, a senior economist in Singapore at Commerzbank AG. “Heavy industry still faces a lot of downward pressure.”

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