Three Years Ago QE, Last Year It Was China, Now It’s Taxes

China’s National Bureau of Statistics reported last week that the official manufacturing PMI for that country rose from 51.6 in October to 51.8 in November. Since “analysts” were expecting 51.4 (Reuters poll of Economists) it was taken as a positive sign. The same was largely true for the official non-manufacturing PMI, rising like its counterpart here from 54.3 the month prior to 54.8 last month.

None of these results, however, are meaningfully different from each other. Rather than indicate any improvement, they actually suggest quite the opposite. According to the PMI’s, China’s economy isn’t falling off but it isn’t accelerating, either. The latter is what really matters, and here in the sentiment data marks the best case for the Chinese.

On the manufacturing side, the headline index is supported almost entirely by the reported experience of China’s biggest firms (many state-owned of one variety or another). The PMI for this size category has been consistently above the overall index, though importantly remaining almost at the same level going back to the latter half of last year.

Small Chinese manufacturers, on the other hand, answer to the NBS with a very different set of perceptions. While there has been an uptick in the PMI for small firms, the index has remained below 50 in each of the last five months and outside just two months in the middle of 2017 has continued in that low state for years. While that doesn’t necessarily mean activity is contracting as is the conventional interpretation surrounding PMI’s at or below 50, what it does suggest is again the clear lack of acceleration especially in the private economy outside government-driven activity and influence.

Middle-sized firms according to the manufacturing PMI fall closer to those of small size rather than those larger.

It suggests that organic growth hasn’t materialized as was expected to follow from 2016’s burst of “stimulus.” That’s a problem, of course, for a lot of related expectations around the world. It was widely anticipated that China was going to lead the global economy out of the 2015-16 doldrums, erasing that global downturn with substantial acceleration benefiting pretty much every beaten up corner of the world.