Back in February we were quite amused by conflicting internal and external
reports of manufacturing growth in China, which according to the HSBC Markit
Manufacturing PMI index had contracted for a 4th consecutive month even as the
official Chinese PMI data showed 3 consecutive expansions. It just happened
again, only this time the spread between the two indices has jumped to the
second highest ever, with the official PMI index surging to 53.1, an
expansionary number, an eleven
month high while according to HSBC it slid
to 48.3, indicative of contraction, and paradoxically indicating that in
"the first quarter as a whole, the index averaged its lowest reading since Q1
2009." In other words, the Schrödinger paradox - where the economy was doing
better and worse at the same time - which was experienced for the past three
months in the US (and is now finished with the economy rolling over), has
shifted to Shanghai, where it is now the PBOC's turn to baffle all with
bullshit. Why? One simple reason: despite what everyone believes, China
still has residual and quite strong pockets of inflation. So while the
world may be expecting an RRR, or even interest rate, cut any second now (just
as China surprised everyone literally house before the November the global FX
swap line expansion by the Fed in November 2011), the PBOC is just not sure
it can afford the spike in inflation, or even perception thereof.
This also explains why while HSBC, being a member of the banking cartel would love nothing more than more easing from PBOC, China is far more more cautious about further easing, especially if the Fed does go ahead with more QE anyway, the bulk of which China would import as excess inflation anyway. For vivid proof of this observe chart two: the last time we had a record spread between HSBC and China PMI, Chinese CPI soared from -2% to over 6%. China is now at 3%, just as the index spread is the second highest ever. If we are to assume that Chinese easing will follow the March 2009 episode, and thus assume a trough Chinese inflation of 3.2%, one can see that the 12% implied inflation at the end of the current easing episode is why the PBOC will be far, far more reluctant to engage in the same easing policies as the Markit group of banks would wish for it to.
This also explains why while HSBC, being a member of the banking cartel would love nothing more than more easing from PBOC, China is far more more cautious about further easing, especially if the Fed does go ahead with more QE anyway, the bulk of which China would import as excess inflation anyway. For vivid proof of this observe chart two: the last time we had a record spread between HSBC and China PMI, Chinese CPI soared from -2% to over 6%. China is now at 3%, just as the index spread is the second highest ever. If we are to assume that Chinese easing will follow the March 2009 episode, and thus assume a trough Chinese inflation of 3.2%, one can see that the 12% implied inflation at the end of the current easing episode is why the PBOC will be far, far more reluctant to engage in the same easing policies as the Markit group of banks would wish for it to.
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