Stabilization of the Economic Activity in China

The two charts below give a synthetic view of what’s going on in the Chinese economy at summer end. We know that the growth momentum is slower than it used to be. Currently the growth rate is below 8% and the question is to know if it will slow again or not.
This survey gives some short-term answers.
In the first chart we see that the economic activity was stabilized in August. The synthetic index was at 50.1 after 3 months below this threshold (below 50 the economic activity is in contraction and above 50 in improvement). At 50.1 the level of activity is comparable to July’s level. There is no supplementary break that could create uncertainties for the rest of the year.
On the second chart we see that this improvement does not come from an external impulse. The New Export Orders index is still well below the 50 threshold. Then the positive perception of the survey comes from a stronger internal momentum. We can see that on New Orders to Inventories ratio. It is well above 1 meaning that after an adjustment on inventories of finished goods higher orders will translate in higher production. In the short run that’s positive and the risk of a new break on economic activity is limited.
This more positive environment can come from recent incentives on investments that have changed the picture for companies.
Another interesting point is that companies have bought commodities and this probably reflects stronger expectations of the environment for the months to come.
The last point to mention is that this stabilization is consistent with a GDP growth rate marginally above to 7.5%. This is good news for all the Asian countries that are still dependent on Chinese impetus.


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