OBOR KNOWLEDGE / HOW TO READ THE SIGNAL

How to read China’s PMI

PMI is a directional survey of business conditions. The 50 line separates expansion from contraction relative to the previous month; it is not a growth rate and does not measure the size of the economy.

WHAT IT MEASURES

China’s purchasing managers’ indexes summarize monthly surveys covering purchasing, production, logistics and related business conditions across manufacturing and non-manufacturing activity. Sub-indexes such as new orders, export orders, inventories and supplier delivery times can carry more specific information than the headline.

WHY IT CAN MATTER IN CANADA

PMI can provide an earlier read on changes in activity than slower official datasets. Canadian firms can use it as context for industrial demand, export conditions, sourcing pressure and business-cycle direction, while avoiding claims that the survey directly measures Canadian exposure.

TRANSMISSION CHANNELS

Demand direction: new-order and production components can indicate improving or weakening business activity.
Export conditions: export-order measures can add context to external demand facing Chinese producers.
Supply chains: inventory and delivery-time components can reveal changes in operating pressure.
Timing: survey data can move before hard production or trade statistics.

HOW TO READ IT

A reading above 50 indicates expansion from the previous month; below 50 indicates contraction.
A lower reading above 50 can mean expansion is continuing at a slower pace.
Use sub-indexes and subsequent hard data to test the story suggested by the headline.

WHAT IT DOES NOT ESTABLISH

A percentage growth rate in output or GDP.
Demand for Canadian exports.
The magnitude of expansion or contraction in dollar terms.

PRIMARY REFERENCE

National Bureau of Statistics of China — Purchasing Managers Index →

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