China’s Caixin survey of service industries surprised analysts with a strong expansionary reading of 55 in May, against a consensus expectation of 47. Of the purchasing managers polled by Caixin, that is, 55% saw higher business volume during the month.
Similar surveys of service industries in the other major economies continue to show contraction.
Caixin’s manufacturing survey for China showed a positive reading of 50.7, while the comparable Markit PMI Index for the US in May came in at 39.8. The Caixin Services Reading reflects a broad sample of privately-owned business, and suggests that Chinese consumers are spending freely. By all indications, this is a grass-roots economic boom rather than an investment-driven expansion driven by state spending.
China’s stock market is the world’s best performer in US dollar terms among the world’s major venues.
The strongest performance in China’s stock market came from consumer staples, information technology and health care, reinforcing the impression that Chinese consumers are driving the recovery.
May retail sales data will be an important gauge. China’s retail sales as of April were down 7.5% year on year, vs. a 22% decline in the US.
Part of China’s resilience despite contracting Western economies stems from a reduction in its dependence on US exports. China’s exports to the US in nominal dollars are virtually flat over the past eight years, while exports to Asia have risen by 32%. As I reported May 20 (“The Asian Century Began in May 2020”), intra-Asian trade boomed during April as the major Asian economies went back to work.
Fiscal stimulus in China has been modest compared to most industrial countries. China’s central government probably will run a fiscal deficit of 3.6% of GDP, up from an earlier target of 2.8% of GDP. The US fiscal deficit by contrast will rise to nearly $4 trillion this year, or close to 20% of GDP. (https://asiatimes.com/)
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