This morning has seen a does of economic news from the epicentre of the current pandemic and hence crisis which is China. This is keenly awaited as we see how the economy responds to the pandemic. Sadly we seem already to be charging into what might be described as Fake News so let us take a look.
BEIJING, March 31 (Xinhua) — The purchasing managers’ index (PMI) for China’s manufacturing sector firmed up to 52 in March from 35.7 in February, the National Bureau of Statistics (NBS) said Tuesday.
A reading above 50 indicates expansion, while a reading below reflects contraction.
The rebound came as the country’s arduous efforts in coordinating epidemic control and economic and social development have generally filtered through, NBS senior statistician Zhao Qinghe said.
Okay now first we need to remind ourselves that this is a sentiment indicator not an actual output number although tucked away we do get some clearer guidance.
With positive changes taking place in domestic epidemic control and prevention, 96.6 percent of China’s large and medium-sized enterprises have resumed production, up 17.7 percentage points from one month ago, NBS survey showed.
A sub-index for production, rallied 26.3 points from one month earlier to 54.1, hinting at reviving production activities.
Below we seem some sectors which we would expect to pick-up and in fact are probably flat-out. Let’s face it demand for some protective equipment may never have been as high as this.
Meanwhile, the PMI for high-tech manufacturing, equipment manufacturing and consumer goods all stood in expansion zone, signaling quickened restoration in the sectors, according to Zhao.
The twitter feed of Xinhua News also continues with the line that things are in some cases back to normal.
As the outbreak of the novel #coronavirus has been basically contained in China, the construction of Xiongan, often billed as China’s “city of the future,” has resumed in an orderly manner.
I am sure some of you have already spotted the difference between “basically contained” and contained already. But the theme is of an economic recovery.
China’s March composite PMI rose significantly to 53, up 24.1 points from February.
This has been reported as being quite a rebound as the two tweet below highlight.
Wow! Impressive V-shape recovery in #China’s Manufacturing #PMI. Up to 52 from 35.7. ( @jsblokland)
So far, data seems to support China’s prospects of a V-shaped economic recovery…. Strong PMI rebound.
The second tweet is from the editor of The Spectator Fraser Nelson.
A V-shaped recovery means that you are very quickly back to where you started. This was what was promised for Greece back in the day which is of course a troubling harbinger. After all the Greek economy promptly collapsed.
The National Bureau of Statistics
It published an explainer which tells a rather different story.
The purchasing manager index is a chain index, which reflects the economic changes in this month compared with the previous month. The magnitude of the change has a great relationship with the base of the previous month.
There was more.
the manufacturing PMI, non-manufacturing business activity index, and the comprehensive PMI output index fell sharply in February, and the base rose from the previous month. These data indicate that the production and operation status of enterprises in March has significantly changed from February.
This gets reinforced here.
Taking the production index as an example, according to the answer of the enterprise purchasing manager to the question “The production volume of the main products of this month has changed from last month”,
So as you can see the situation is likely to be as follows the reading of 52 is an improvement on the 35.7 of February. so for example might be 38 or 39 if we try to impose some sort of absolute moniker in this. Accordingly there has been an improvement but V-shaped?
The mire sanguine view I have expressed is much more in line with this from the South China Morning Post today.
China’s economic situation could get worse before it gets better, amid a second wave of demand shock that is set to hit both domestic and foreign trade, a Chinese government official has warned.Addressing a press conference in Beijing on Monday, the day after President Xi Jinping toured businesses in Zhejiang province, vice-minister of industry and information technology Xin Guobin delivered a candid and downbeat assessment of the economy, in a subtle break from recent optimistic rhetoric about economic recovery.
What is behind his thinking?
“With the further spread of the international epidemic, China’s foreign trade situation may further deteriorate,” Xin said. “Overseas and domestic demand are both slumping, having a significant impact on some export-oriented companies. These companies might face a struggle to survive.”
We also get a clue as to what “barely contained” in terms of the Corona Virus means.
After bringing the domestic epidemic under control, China gave the green light earlier this month for over 600 cinemas, thousands of tourism attractions and half the country’s restaurants to reopen.
But in sudden U-turn last Friday, the National Film Bureau ordered all cinemas to shut down again, without explaining why or when they might hope to reopen.
Shanghai municipal authorities also ordered a number of famous tourist attractions to close over the weekend, including the Oriental Pearl Tower and Shanghai Ocean Aquarium.
Is it back?
Hong Kong
We have looked at Hong Kong before because it had its economic troubles before this pandemic struck. However in terms of today’s subject it does give us something of a clue to what is happening in China and if so today’s Retail Sales numbers speak for themselves.
After netting out the effect of price changes over the same period, the provisional estimate of the volume of total retail sales in February 2020 decreased by 46.7% compared with a year earlier. The revised estimate of the volume of total retail sales in January 2020 decreased by 23.1% compared with a year earlier. For the first two months of 2020 taken together, the provisional estimate of the total retail sales decreased by 33.9% in volume compared with the same period in 2019.
It is not to say that some areas have not seen a boost.
On the other hand, the value of sales of commodities in supermarkets increased by 11.1% in the first two months of 2020 over the same period a year earlier. This was followed by sales of fuels (+6.5% in value).
The first part is no surprise but unless people were fleeing the place ( or perhaps preparing to) I am unsure about the second part.
For the other areas of retail sales it was basically the tale of woe you might expect.
Analysed by broad type of retail outlet in descending order of the provisional estimate of the value of sales and comparing the combined total sales for January and February 2020 with the same period a year earlier, the value of sales of food, alcoholic drinks and tobacco decreased by 9.3%. This was followed by sales of jewellery, watches and clocks, and valuable gifts (-58.6% in value); other consumer goods, not elsewhere classified (-21.9%); electrical goods and other consumer durable goods, not elsewhere classified (-25.1%); medicines and cosmetics (-42.7%); commodities in department stores (-41.4%); wearing apparel (-49.9%); motor vehicles and parts (-24.2%); footwear, allied products and other clothing accessories (-43.1%); furniture and fixtures (-19.6%); Chinese drugs and herbs (-23.7%); books, newspapers, stationery and gifts (-35.0%); and optical shops (-28.6%).
Comment
These are highly charged times both in terms of the pandemic and the subsequent economic outlook. As you can see the reports of China bouncing back are in fact beyond optimistic. Indeed even Xhinua News made the point.
However, Zhao said the single-month rise does not necessarily mean the production has been back to pre-outbreak levels, noting that more data should be observed. The upturn of economy, Zhao said, only comes when the PMI moves up for at least three consecutive months.
So today’s song lyrics come from Brian Ferry ( although originally written by Bob Dylan).
It’s a hard and it’s a hard and it’s a hard and it’s a hard
And it’s a hard rain’s a gonna fall
Notayesmanseconomics's Blog 
You never know these days (although the Soviets used to put up a lot of fake production figures), but there is footage on YouTube showing riots in China and Lenin said we are only a day’s food away from revolution. There is certainly trouble in southern Italy over food supplies and even Farage is moaning about the authoritarian state of the country at the moment.
This episode will be over in a month, but it is this kind of shock that changes attitudes – insulation and more efficient cars start with the 1973 oil price shock. Helicopter money is going to be largely squirrelled away. So, will people continue buying all this tat from China anyway?
So, some very rare lyrics from Jean Michel Jarre
Human; not human
Freedom; no freedom
Change; no change
Revolution!
Employment; no employment
Choice; no choice
Memory; no memory
Revolution!
Revolution!
Sex; no sex
TV; no TV
Future; no future
Revolution!
Computer; no, no computer
Sex; no, no, no sex
Memory; no, no,…
Interesting to look back at a BBC report of 15/10/2018 about the growing threat s to the Asia-Pacific region identified by the IMF. These included trade wars and emerging market contagion (I keep visualising that Chinese-American CFA when there is talk of EMs).
It looks like there may be a repeat of the 97 East Asia crisis, but how much longer can China hide all that bad debt in its companies? If these reports about riots in China are true, then the CCP will crack down and its growth under semi-capitalism will halt, causing more trouble.
“This episode will be over in a month…”
I disagree. This spike may be over in a month, but I think there will be an immediate 2nd spike when regulations are relaxed.
I also believe that the govt. is telling the at-risk to isolate for 12 weeks only as a start; I think it will be a year, which is when I hope a vaccine will be widely available.
Hello Shaun,
“This was followed by sales of fuels (+6.5% in value).”
topping up of tanks like the last time I suspect – because I did too
might find demand returns after we’re allowed to restart the economy .
for Molotov cocktails of course 😉
Forbin
The U.K. supermarket sales were up 2&0%, so there will be plenty of pent-up demand – but the authoritarian powers will stay to face the Molotovs!
I never expected a v shaped bounce back to previous figures.
The reason was obvious as China exports a lot of clothing in particular, the lock down in the UK and Europe would see canceled order in the Chinese factories.
You would only get a proper v shaped bounce back if the suppliers were out of the virus.
At best any recovery will be slow and bouncy and erratic and it could be like that for 12 months or so until normalization resumes.
Even then the world will still be suffering from a recession and I would;t like to guess how long that will go on for.
When we entered the financial crisis inn 2008 we were told the good time were over, now its a case of there will be more bad times to come, people will be poorer and we will have tom get on with it.
Hi Peter
There are problems for manufacturing in China at both ends of the chain. As you point out those supplying the West will find that presently there is very little demand for many items as so many places are in lock down. Also various supply chains will find that their jigsaw is missing a piece or two.
In the end we find ourselves returning to the pandemic and how much it is under control out there will drive a lot of things.
China is notorious for lying about economic statistics during good times, so these numbers should be viewed with utter contempt. It is a sign of the level of mistrust of these figures that electricity consumption was used as proxy for economic activity, although if you can’t trust the economic numbers why would you trust the generation figures either!
But it’s not just China, the whole worlds economic system is a Potemkin Village kept afloat by ever more desperate central bank intervention. The latest Fed bailout rescues such worthies as the companies in the SP500 that have spent in excess of $5.3trn on stock buybacks since 2010 and the airline industry that has spent most of its free cash flow over recent years on share buybacks and is now bankrupt.
Richard Branson who bought SkyBlue together with Delta was recently accused of hypocrisy when seeking a government loan to help it survive as it was pointed out that he said BA should not get government help when he was in direct competition with them and said “loss making inefficient airlines should go to the wall”. But Branson has previous in this regard, he also tried to get a bailout of Virgin Trains East Coast in 2018.
Stelios and his family have received around £300m in Easyjet dividends over the years and now will be also going begging bowl in hand.
The Fed is now giving away $6trn to deserving causes such as Larry Fink at Blackrock who are going to administer three of the giveaways and can decide who and what to spend it on, they can even buy their own funds!!!
The whole package is a fraud on the US taxpayer as the Fed have transferred all liabilities for the losses arising from these handouts to the US Treasury, and in case anyone starts to get a bit bolshy and asks who got what, they don’t have to say, it’s all a secret.
So just shut up complaining, get back to work and let these people get on with the business of helping themselves to risk free money at zero cost to award themselves share options, safe in the knowledge that should anything go wrong to cause them a loss, the central bank will fire up the printing presses and buy shares and bonds until they are back in profit, while you worry about whether you can pay the credit card bill(interest rate 20%) or overdraft(interest rate 40%)to the bank you bailed out with your taxes past, present and future.
Of course the central banks are keeping an eye on inflation, as one of their remits is to keep it under control(theft of a theoretical 2% a year is ideal to them), but printing money is like trying to get ketchup out of a bottle, furious force seems to produce nothing for a while and then suddenly the whole bottle lands on your plate and up your shirt, eventually inflation will take off the same way and then they won’t be able to control it.
Kevin,
Inflation already here if increase in weekly shopping costs continues – rationing by price possibly or limited supplies means no sales promotion needed?
Regards
I agree – we’ll need a close eye on the big supermarket profits
let me guess, they are good !
Board meeting of top executives :-
End of the world profit margins look bad
on the other hand
Pre End of the world margins are excellent !
Forbin
Hello Shaun,
If demand for Chinese goods does not recover – neither will they.
one reason why –
“On Tuesday, Nationwide – one of the UK’s biggest lenders – effectively pulled out of new deals.
Others are doing the same as the home mortgage market goes into lock down amid the corona virus which has brought the economy to a virtual standstill.
Nationwide will now only offer home loans to those with 25% equity or more.”
this means very little sales , which means that engine has stalled dead along with all associated jobs……
The Romans used dole grain – we’ll call it UBI
Forbin
Housing stagnation started then falls to come.
The large builders probably paid too much for their land values and that will hit their margins.
When all this is over there will be far less people going to towns as many businesses will be no longer there.
Councils may have to re-designate some areas of town from shops to housing and flats.
It wont be done straight away but the way we do things will have changed for ever solicitors do not need prime position in towns they can interview clients by skype.
The population will reconsider whether they have to do as much travel especially by public transport, bus tube and train.
The same goes for holidays abroad there will be less people going abroad after a bad experience trying to get back.
All in all Greta Thunberg wanting to curb greenhouse gas has been overtaken by nature itself.
Greenhouse gas must have collapsed the last 2 months so there is some good news which has come out of the pandemic.
Golman Sachs sees no growth in China this year and the US to decline 9% in first quarter and 34% in second quarter and a 15% unemployment rate.
https://finance.yahoo.com/news/us-gdp-plummet-34-second-124810242.html
These figures suggest biggest since the last great recession. These are my predictions:
Whatever happens in both China and the US will filter throughout the rest of the world.
There is no doubt about all this and property prices worldwide will inevitably have to fall.
The banks are sure to be hit having increased their lending the last year or so before the pandemic.
Unemployment in the UK sure to follow.
And no sooner than I predict what is going to happen to GDP and house prices Barclays bank and Lloyds including other banks told to suspend their dividends.
https://uk.investing.com/equities/lloyds-banking-grp
The wealth who rely on dividend income going to suffer from both a loss of capital and also yields on their investments.
All this will filter into less spending and much higher unemployment in the UK.
The current global economic meltdown has much further to go imo and its too early to say when it will end.
My own view is this year will be dire and it could take 2 years before we see any real green shoots and that will have to be done by a concerted effort to support the economies through various fiscal stimulus.
Hi Peter
The World Bank has forecast this. From FXStreet.
“In China, where the coronavirus outbreak originated in late December, growth was projected to slow to 2.3% in the baseline scenario, or as low as 0.1% in the lower-case scenario, compared to growth of 6.1% in 2019.
Precise growth forecasts were difficult, given the rapidly changing situation.”
As to the banks the share prices indicate trouble. Barclays closed tonight at 94 pence and Lloyds Bank at 32 pence down 39% and 46% on a year ago. Of course we considered the numbers a year ago to be depressed. I am not sure the Bank of England can enforce this as the days of the “Governors Eyebrows” are long gone but if we look around the word some banks seem to be getting the message.
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