Official and Caixin production PMI for April
An employee works on a assembly line that produces Mercedes-Benz cars in Beijing on August 31, 2015.
Kim Kyung-Hoon | Reuters
China's industry sector grew slower than expected in April, according to data released on Tuesday.
Caixin / Markit Factory Purchase Manager's April April was 50.2 – lower than the 50.8 March reading and missing 51 forecasted by analysts in a Reuters survey.
The results of the private Caixin survey came after China's National Bureau of Statistics released official production PMI in April, falling to 50.1[ads1] from 50.5 in March. Analysts asked by Reuters had expected the indicator to remain at 50.5. PMI measurements above 50 indicate expansion, while during this signal, contraction. The official PMI survey typically examines a large proportion of large corporations and state-owned enterprises, while the Caixin indicator has a larger mix of small and medium-sized businesses.
The Australian dollar fell by 0.13% against the US dollar in afternoon trading in Asia. After the release of the production figures, the Aussie dollar saw a sharp fall of about 0.2%, reversing previous gains. The Australian dollar is often seen as a proxy for Chinese economic prospects. China is Australia's largest trading partner, according to the Foreign Ministry of Australia.
Tommy Xie, chief of China's major OCBC survey, said "slightly softer" official PMI data can be attributed to a build up in last month's goods. He explained that many companies increased production in March to take advantage of the value-added downturns that came into force in early April.
"In general, over 50 is still a decent number," Xie told CNBC's "Street Signs" before the release of Caixin / Markit data.
PMI is a survey of companies about the operating environment. Such data provides an initial insight into what is happening in an economy, as they are usually among the first major economic indicators released each month.
For China, PMI among economic indicators is that investors globally look closely at signs of problems among household headwinds and the ongoing trade negotiations between the United States and China.
More Patience Needed
Earlier this month, China surprised investors and analysts when it announced that the economy – the world's second largest – expanded by 6.4% year-on-year in the first quarter of 2019. This led to more major banks increased growth forecasts for China.
Tuesday's data showed not only a decline in growth in the Chinese industry, it also pointed to a loss in speed for the service sector – which accounts for more than half of China's economy. Beijing said the official non-production PMI died at 54.3 in April from 54.8 in March.
Analysts from the Malaysian bank Maybank said the latest data suggests that China's "growth recovery is likely to be modest." However, Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, said it is too early to conclude that Chinese economic growth is slowing down based on the latest indicators.
"I think we need to be a little more patient," he told CNBC's "Street Signs" after the release of both official and Caixin / Markit PMIs.
He added that there is still room for the Chinese government's incentive to work through economics, so investors should observe a few months of financial data to get a fuller picture of China's economic health.
