Chinese Economy: A-Not-So-Hard Landing?

Yesterday, HSBC’s Manufacturing PMI was released. It showed that China’s economy is starting to stabilize as manufacturing activity rose to its highest level in over four months.

HSBC PMI

The Flash HSBC Manufacturing PMI jumped to 50.1 in August, which was notably higher than July’s final reading of 47.7. Take note that July’s reading was the lowest ever recorded in 11 months. The PMI finally passed the 50.0 figure that divides growth from contraction.

But what makes the rise truly impressive is that the surge came from the strengthening domestic demand, and not due to exports like what China has been used to. New orders, for instance, soared to 50.5 from 46.6.

You should know that a lot of market junkies keep close tabs on the HSBC manufacturing PMI. It is considered as one of the most accurate reports in giving market participants an idea of where the economy is headed.

The reading for August coincides nicely with other data points which suggest that growth in the world’s second-largest economy is picking up. For instance, the Chinese government’s official manufacturing PMI report for August also shows that the sector expanded for the first time in four months, printing at 50.1.

Many think that these positive figures are evidence that China’s rebalancing act and “fine-tuning” policies could finally be taking effect.

If you recall, the government quickly got to work in stimulating the economy following the GDP report which showed that growth only came in at 7.5% in Q2 2013. The State Council implemented tax cuts for small businesses, helped exporters, and provided fresh capital for transport infrastructure.

A few market wizards think that this is only the beginning and we’ll continue to see stronger growth from China in the coming months. Now, let’s get to the juicy part. How can this help you?

Because of the enormous size of the Chinese economy, improvements on the domestic front are usually also felt elsewhere. Australia, for instance, benefits a lot from growth in China because it is its largest trading partner.

This is why Chinese economic events tend to impact the Aussie dollar the most among the majors. Positive data from China implies that Chinese demand for Australian commodities could increase. With that said, don’t be surprised to see the positive manufacturing PMI report continue to provide the Aussie with support in the next few trading days!