Different PMI readings point to slowdown

A difference between China's official purchasing managers index (PMI) of the manufacturing sector and the private HSBC PMI reading has again raised questions about which one better reflects reality.

The official PMI, jointly released Sunday by the China Federation of Logistics and Purchasing (CFLP) and the National Bureau of Statistics (NBS), eased 0.2 percentage points from May to a seven-month low of 50.2 percent in June.

The official reading means the manufacturing sector in the world's second-largest economy is still expanding, though at slower pace than previously.

But the figure released one day later by HSBC on Monday was different.

According to the HSBC survey, China's June PMI stood at 48.2, marking a manufacturing contraction for eight consecutive months and also declined to the lowest level in seven months.

A PMI reading above 50 percent suggests expansion while a reading below 50 percent indicates contraction.

The calculation of the official manufacturing PMI data covers 820 enterprises of 31 sectors, including large enterprises, as well as small- and medium-sized enterprises, while the HSBC poll covers around 400 small- and medium-sized companies.

Meng Qingxin, director of the services survey center with the NBS, said the agency and the CFLP set the number of samples of different sectors when compiling the manufacturing index according to the proportion of one sector's value-added in the entire manufacturing industry.

"Only by this way can we reflect the entire manufacturing industry," Meng said.

It was the second time the two PMI readings contradicted each other this year. The official March PMI jumped to 53.1 percent, in contrast with the HSBC result at 48.2.

Chief economist for HSBC China Qu Hongbin once explained earlier this year that the difference between two readings was caused by different choices of survey samples and methods of seasonal adjustment.

As suggested by the official data, the PMI for large enterprises was 50.6 percent in June, while the PMI for medium- and small-sized companies hit 50 and 47.2 percent, respectively.

Cai Zhizhou, a researcher with Peking University, said even though the two PMI readings differed, both indices underlined a slowdown in the manufacturing sector.

"We can draw the same conclusion from the two different PMI readings that small companies are having difficulty."

To make the official PMI survey more accurate, Meng said the number of samples will be gradually expanded to 3,000 enterprises from 800 currently and compilers will publish more detailed figures by region.

"But any expansion in samples must be conducted on condition that the quality can be guaranteed. It takes time for training and observation to ensure that the survey can reflect the reality in a thorough and accurate way," Meng added.