In the news: China's "two-speed" economy and antitrust enforcement under the lens, Wanda agrees to buy Legendary

China's two-speed economy: factories vs services

The first economic reports of 2016 signaled China's manufacturing weakened for a fifth straight month, the longest streak since 2009, while a number of services sectors rose to the highest level in more than a year. The Caixin China Manufacturing PMI index released on Monday showed a slight drop to 48.2 from the previous month's 48.6, whereas the official non-manufacturing PMI rose to a 16-month high of 54.4. These readings still signal a “two-speed” economy dragged down by excess heavy manufacturing capacity especially in steel and shipbuilding. Markets reacted badly on their opening day, but investors should be reminded that China is shifting the economy away from manufacturing and investment to consumption and services, and decreasing figures in the former is part of that transition. It is up to the policy makers to drive this change, by identifying the areas that aren't showing signs of picking up and supporting the ones that are. A Caixin services PMI figure released on Jan 6 morning apparently fell to a 17-month low, disrupting the markets once more, but this index focuses on smaller firms. Official data will provide investors with a bigger picture on how all the different sectors are contributing to growth (or not). Numbers may weaken in the short term, but in the long run, the reforms – if implemented effectively – should lead to a steadier and leaner economy. 

More from CLP: