Official PMI figures for January, released by the National Bureau of Statistics (NBS) showed the index sliding to 50.4 from December’s 50.6, much lower than market estimates of 51.
The figure is still in expansion territory but only just, and investors were so surprised by the fall that shares in Hong Kong were dragged down 0.4%, while the China Enterprises Index of the top Chinese listings in Hong Kong fell 0.5%.
The decline in the official figure was driven by weaker production and inventory cuts – while new orders continued to improve slightly.
But the private, HSBC final manufacturing PMI showed an improvement, rising to a two-year high of 52.3 in January from December’s 51.5, with new orders and export orders improving and finished goods orders falling slightly.
Analysts advanced various explanations for the difference between the two, with the Chinese New Year but also pollution in China’s biggest cities high among the possible reasons.
The NBS expanded the sample of factories from where it collects answers to 3000 from 820 in 31 different industries, but gave no estimates as to the influence this might have on the data.
Ting Lu, China economist at Bank of America Merrill Lynch, said that the PMI was “quite an inaccurate barometer around the Chinese New Year holiday due to heavy seasonal adjustments.”
“As there is big room regarding seasonal adjustment during the Chinese New Year holiday, it is likely that the NBS statisticians could have reported a conservative estimate within the allowable range,” Lu said.
POLLUTION CLOSING FACTORIES
He added that the “surprising slowdown” in the output and employment components of the official PMI – with output dropping to 51.3 from December’s 52 and employment falling to 47.8 from 49 – “might partially reflect the effect of the Chinese New Year holidays, as migrant workers have started to return home.”
The HSBC PMI collects answers from purchasing managers in around 420 smaller, export-oriented companies, while the official PMI focuses in bigger companies, including state-owned enterprises. “The difference in behaviour in January may also signal that the sentiment in export-oriented and smaller companies improved more than that in domestically oriented and larger companies,” Louis Kujis, an economist with RBS, said.
Pollution could be another reason for the diverging results of the two surveys, with the official, heavy-industry focused figure affected by measures to cut industrial emissions, according to Danske Bank senior analyst Flemming Nielsen.
“We cannot completely rule out that there has been an impact from the air pollution that has hit parts of northern China, which forced the government to close major factories temporarily to ease air pollution in, for example, the Beijing area,” Nielsen said.
“This would be consistent with weakness primarily driven by weaker production and inventory cuts as seen in the NBS manufacturing PMI.”
More than 100 heavily polluting plants in Beijing were shut down temporarily after pollution hit levels between 30 and 45 times higher than what is considered safe earlier this month in the city. Thick, smog-like clouds covered the city, halting flights and forcing residents to stay indoors.