Caixin Services PMI Disappoints

Alan Penny

8 October 2019

3 min read

China flag

  • September number 51.3, lower than August
  • Expansionary, but dwindling over time
  • Could be a sign of weakening internal economy

Caixin released its Services PMI figures for September last night, coming in at 51.3, down from 52.1 in August. This shows that the services sector in China is slowing down, which could be representative of a slowing Chinese mainland economy. Anything over 50 is considered to be expansion, but just 1.3 points above that is historically on the light side, and the lowest figure to come from China in the last seven months.

1.3 points above that is historically on the light side, and the lowest figure to come from China in the last seven months

While the Chinese manufacturing figures tend to attract more attention, one cannot forget the services sector, as it is indicative of money flowing through the Chinese economy internally. It is simply an extension of wealth transfer from the manufacturing base to the middle class, something that has been exploding in China for years. It is worth paying attention to as in China it’s considered the main driver of growth for the last several years.

Chinese economy reverberates around the world

The global economy is greatly influenced by all things China-related, as most pundits believe the Chinese have essentially carried most of the global economy since the great financial crisis. At this point, the market is having to deal with the idea of the Chinese not being able to pick up the rest of the world, and therefore traders will begin to think about where growth is to be found. So far, it’s been the United States, but that doesn’t grow quickly enough to lift everyone else up.

US/China trade talks

Ironically, this is the same week that the Americans and the Chinese are meeting about trade negotiations at a higher level. Ultimately, this is a market that is going to continue to see a lot of noise around that drama. Moreover, with the numbers out of China starting to slip, it will be interesting to see whether or not the Americans choose to press any perceived advantage. So far, that does seem to be the case, as Donald Trump has already suggested that a “skinny deal” isn’t going to happen.

The Chinese are willing to move on some bits and pieces of what could be a larger deal, but not the entire deal itself. As the Americans and the Chinese are light years apart right now, tariffs will increase against the Chinese going forward. This will continue to drag the Chinese economy lower on the manufacturing and export side, which will more than likely translate into a sluggish economy in the “real world” of the mainland.

Ultimately, this is yet another indicator that is going to weigh upon the idea of China expanding longer-term. Short-term trading probably won’t be influenced, but this is yet another reason to worry about global growth,and perhaps drive up the value of safety assets. By the end of the week, the trade talks will more than likely disappoint yet again.

Written By
Alan Penny

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