After a slight rebound, Chinese business sentiment falls again

Latest data point toward continued deceleration in China in February, especially in the external sector.

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Chinese official manufacturing and non-manufacturing purchasing manager indices (PMI) fell again in February, following a pause in January. The manufacturing PMI came in at 49.2, down from 49.5 in the previous month. The non-manufacturing PMI, while continuing to signal expansion, also fell in February — to 54.3, from 54.7 the previous month.

The data show a divergence between the performances of large enterprises and small- and medium-sized enterprises (SMEs), suggesting that the government’s stimulus so far has mainly benefited the former.

After a rebound in January, trade activity remained weak, with the new export and imports orders sub-indices falling again in February.

On the domestic front, the picture is mixed. The production sub-index slid into contraction territory (49.6) in February, compared with 50.9 in January. The employment sub-index moved lower from the previous month and also signals a contraction in activity.

Overall, the latest PMI report is consistent with our expectation for further deceleration of the Chinese economy, despite the encouraging credit growth in January. We maintain our view that growth may continue to decelerate in H1 2019 before staging a modest rebound in H2.

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