China Flash PMI to Show Continued Slowdown Fears

China’s economy has posted mixed figures of late. Next week will see the release of the HSBC Flash manufacturing purchasing managers index (PMI). The results of the preliminary survey of purchasing managers in the manufacturing industry has struggled to register above 50 since February. A reading above 50 is considered expansion, while anything under that reading is a contraction. The Chinese PMI was published last month at 49.1. China’s economic rise boosted global growth and increase production of commodities to satisfy Chinese demand. The slowdown of the economy is one of the major risk factors impacting global growth. Internal demand has not offset the lost exports and Bank of China economists are now forecasting a turnaround in the second half of the year. The Chinese premier has warned the market about slower growth to avoid a sudden crash as indicators underperform. The central bank has already cut rates three times this year in an effort to stimulate the economy along with other measures, but it is too early to tell if they will have the desired effect.



The International Monetary Fund (IMF) said at the end of May that the Yuan was no longer overvalued. The Washington based organization went further and suggested that if the currency wants to be included in the Reserve Assets Basket it should move towards a free floating rate of exchange. China is caught in a difficult balancing act. Short term growth needs to be boosted in order to avoid falling further behind but at the same time long term objectives that include much needed structural reforms need to happen to secure long term goals. A free floating exchange falls into the second category, but it is not a priority if Beijing cannot guide China to a soft landing in the current macro climate.

The Chinese PMI disappointed last month by missing expectations at 49.1 when 49.4 was expected. The contraction was worse than forecasted and the leading indicator was a bad sign to commodity exporting nations like Australia and New Zealand that count China as their main trading partners.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza