Higher PMI May Stimulate More Tightening Regulatory Policy

SHANGHAI, Dec.1 (SMM) - China’s Purchasing Managers Index (PMI) for November was 55.2%, up 0.5% from the previous month, and a rise for the 4th straight month. The reading also remained above 50% for the 21st straight month since March 2009, indicating a continuous expansion in China’s manufacturing sector. China’s economy is overheating according to the sub-indicators.
 
Rising Production and Purchasing Price Indexes Push Up PMI
Among the five item indexes of Purchasing Manager Index (PMI), the indexes of production and purchasing price attributed most to the higher PMI in November. The production index continued to rise and reached 58.5% in November, up 1.4% from a month earlier. The production index was as high as 70% in tobacco, electric equipment and machinery, transport equipment manufacturing, apparel/shoes/hats manufacturing, and fur, feather and product manufacturing industries, indicating overheating momentum in the manufacturing sector. What should be noticed is the constant increases in the PMI’s purchasing price index, despite controlling policies carried out by China’s Central Government in October aimed to curb commodity prices, including interest rate increases, reserve requirement ratio hike and price guidance.

The purchasing price index was 73.5% in November, up 3.6% from a month earlier. By industry, all of the 20 industries exceeded 50% in purchasing price index, with 15 industries higher than 70%. The reading in chemical fiber, rubber and plastic manufacturing, wood processing, furniture manufacturing, petroleum processing, coke, chemical, nonferrous metals smelting and rolling industries even hit 80%. By product, the purchasing price index of raw materials and energy, intermediate products, consumption goods and finished goods for production was high, with the reading for consumption goods slightly below 70%, and the reading for the rest exceeding 70%.

SMM believes production costs will surely increase amid the current high purchasing price index, and will be passed on prices of industrial and consumer goods, and so the inflationary pressure will remain high. 

 
China May Issue Further Regulatory Policies on Soaring PMI
The PMI, one leading indicator, has posed a 4-month surge, and a rise for the 21st straight month, further improving a too fast pace of expansion in China’s manufacturing sector. Chinese government has taken tightening policies such as raising interest rates and the deposit reserve ratio. If related economic indicators fail to drop after policies have been implemented for a period of time, China is likely to take further steps. SMM believes China’s PMI should remain above 50% in the future, and any possibility of drop will be limited in the short term.

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