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Rise of services, building sectors to ease concern on hard landing
By Sun Chi and Sun Mingchun |
September 12, 2012, Wednesday
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Print Edition
Print Edition
CHINA'S official PMI for the non-manufacturing sectors (including the construction and service sectors) rose to 56.3 in August from 55.6 in July, suggesting that the non-manufacturing businesses expanded strongly.
In 2011, the construction and service sectors accounted for 49.9 percent of China's GDP, while the share for the manufacturing sector was only about 35 percent, based on our estimate.
Therefore, we believe the non-manufacturing PMI deserves the same (if not more) attention from investors as the manufacturing PMI.
In particular, business activity for the construction sector rose to 61.1 from 60.4 in July, suggesting that investment in infrastructure and real estate projects may have accelerated in August. Meanwhile, business activity for the service sectors increased to 55.1 from 54.4 in July, with the robust expansion in the air transport, leasing and commercial services, residential services, and the telecommunications and other information transmission service sector.
Strong investment
While new orders for the construction sector fell by 1.7 points to 55.3 in August, this above-55 level points to still strong investment in infrastructure and real-estate projects in the next few months.
The input price rose sharply to 57.6 from 49.7, while the price charged increased to 51.2 after having been below 50 for three months. These readings suggest that service and construction providers have regained pricing power even though input price inflation has increased.
The business expectation index fell again from 63.9 in July to 63.2, but was still at an elevated level. This tells us that companies in the service and construction sectors have maintained very upbeat views on the future business outlook. This presents a big contrast to the pessimistic view of the manufacturers.
Although the manufacturing PMI fell below 50, the non-manufacturing PMI is well above 50, suggesting that at least half of the economy is still in very good shape.
The official non-manufacturing PMI in August confirmed strong business activity in China's service and construction sectors. With 50 percent of China's economy still expanding strongly, we see little chance of an economic hard landing for China in the near term.
Sun Chi and Sun Mingchun are analysts with Daiwa Capital Markets. The article was based on a research note issued on September 3. The opinions expressed are their own.
In 2011, the construction and service sectors accounted for 49.9 percent of China's GDP, while the share for the manufacturing sector was only about 35 percent, based on our estimate.
Therefore, we believe the non-manufacturing PMI deserves the same (if not more) attention from investors as the manufacturing PMI.
In particular, business activity for the construction sector rose to 61.1 from 60.4 in July, suggesting that investment in infrastructure and real estate projects may have accelerated in August. Meanwhile, business activity for the service sectors increased to 55.1 from 54.4 in July, with the robust expansion in the air transport, leasing and commercial services, residential services, and the telecommunications and other information transmission service sector.
Strong investment
While new orders for the construction sector fell by 1.7 points to 55.3 in August, this above-55 level points to still strong investment in infrastructure and real-estate projects in the next few months.
The input price rose sharply to 57.6 from 49.7, while the price charged increased to 51.2 after having been below 50 for three months. These readings suggest that service and construction providers have regained pricing power even though input price inflation has increased.
The business expectation index fell again from 63.9 in July to 63.2, but was still at an elevated level. This tells us that companies in the service and construction sectors have maintained very upbeat views on the future business outlook. This presents a big contrast to the pessimistic view of the manufacturers.
Although the manufacturing PMI fell below 50, the non-manufacturing PMI is well above 50, suggesting that at least half of the economy is still in very good shape.
The official non-manufacturing PMI in August confirmed strong business activity in China's service and construction sectors. With 50 percent of China's economy still expanding strongly, we see little chance of an economic hard landing for China in the near term.
Sun Chi and Sun Mingchun are analysts with Daiwa Capital Markets. The article was based on a research note issued on September 3. The opinions expressed are their own.
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