11/15/21, 5:41 PM China PMIs: a tale of two surveys | Financial Times

Global Economy
China PMIs: a tale of two surveys
Official and private indices paint different pictures — which to believe?

© EPA

Yuan Yang in Beijing AUGUST 3 2016

China’s purchasing manager indices, which take the pulse of factory activity by
surveying companies, are a puzzle. There is the official government measure and a
private one, produced by Caixin-Markit, a media and research group partnership —
and each paints a very different picture.

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11/15/21, 5:41 PM China PMIs: a tale of two surveys | Financial Times

What do the indices show?

PMIs measure the change in business activity from one month to the next. A score
above 50 means business is growing, and a score below 50 indicates business is
shrinking. The methodologies for both the official and Caixin manufacturing PMIs are
calculated based on questionnaires sent out to purchasing managers in a group of
companies, asking them to compare this month’s activity with the previous month’s.

How are they diverging?

Divergence is nothing new and the government typically has a rosier picture than the
private index.

In the first half of 2014, for example, the official chart stayed above 50 while the
Caixin PMI showed manufacturing slumping. That was the year China’s growth hit a
24-year low of 7.4 per cent, missing the government’s target of 7.5 per cent, and
property prices started to fall.

The March to June quarter this year brought a recurrence of that: the official
measures showed manufacturing growing — but only just — while Caixin-Markit
showed manufacturing falling. But In July’s PMI the two measures swapped sides:
Caixin now showed the highest manufacturing growth since February 2015, while the
government showed manufacturing starting to slump.

So what gives?

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11/15/21, 5:41 PM China PMIs: a tale of two surveys | Financial Times

The divergence is explained in part by the difference in the companies being surveyed.
Markit, which calculates the Caixin-Markit index, send out their questionnaires to
more than 500 mainly small, private businesses. The government has a much bigger
sample size of 3,000 companies, by far the bulk of which are state-owned enterprises.

Regional differences also matter. Liu Liu, an economist at investment bank China
International Capital Corporation, suggests July’s uptick in the Caixin PMI is not
down to differences in business size — the official PMI for SMEs also slumped last
month — but to do with the fact that many of the companies surveyed by Caixin are
based on the booming east coast.

Which should we believe?

In short, both measures are correct in that they reflect their constituents’ activity —
but it is the private survey that gives the truer sentiment of factory floors that are not
protected by the state.

The SOEs are not necessarily better businesses. They are being used as the conduit for
stimulus, meaning cheap credit is flowing through state-owned steel mills, cement
companies and electricity generators. SOEs are using this credit to invest and expand
their operations. And since SOEs tend to order from one another, this leads to SOEs
having a fuller order book.

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11/15/21, 5:41 PM China PMIs: a tale of two surveys | Financial Times

Beijing is also wary of unemployment leading to social strife, so SOEs are careful
about firing workers. Neither of these are luxuries afforded to private companies. The
questions used in PMI surveys, such as whether the workforce has increased, and
whether output has increased, measure volume of business rather than efficiency.

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