Economics: Why China Continues To Disappoint The Crash Callers

(Drivebycuriosity) - Last night we got fresh news from China`s economic front which were disappointing again - for the China crash callers. The government reported their Purchasing Manager Indices (PMIs) for January which indicate the status quo of China´s economy. Both indicators were better than in December and higher than expected.

This month the Non-Manufacturing PMI, which represents China´s service sector, climbed to 54.7 from 53.8 in December, signalling that the service sector is growing faster. The manufacturing PMI advanced to 49.5 from 49.4, signalling a slower drop  (charts below).

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The services sector accounts for more than half of the Chinese economy and is therefore more important than manufacturing (like in the US).  Both indices together indicate that China grew a bit faster in January than in December, not really a China crash. The better numbers are not surprising. In January Beijing announced tax cuts “on a larger scale” in order to boost business activity and The People's Bank of China  injected more money into the market via a targeted cut of the reserve requirement ratio. There are also signs that the trade talks between China and the US are making progress.

I suppose that China`s solid growth will continue in the coming months, driven by the expanding service sector. China is rapidly changing from an industrial country - which relies on exports - into a modern economy like the US which is dominated by services and focuses mostly on the domestic market. The China crash callers will be disappointed again.