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Investment Research — General Market Conditions

1 March 2011
Flash Comment
China: NBS PMI falls, but not as badly as HSBC PMI

 China’s NBS manufacturing PMI fell in February, but not by as much as the HSBC
NBS manufacturing PMI
PMI released last week. While both PMIs appear to have peaked and growth in China
should start to slow from Q2, the message from the two PMIs is very different on the

pace of the slowdown. Export orders from other Asian PMIs do not suggest a sharp
Total 52.2
- Output
 We expect China’s GDP growth to slow from around 10½% q/q AR in Q1 to just
-New orders
below 8% q/q AR in Q1. If our forecast is right this suggests that China’s PMIs are
-Export orders
below 50 in late-Q2 11.
-Inventories 46.4
Source: Reuters Ecowin
The official NBS manufacturing PMI in February fell to 52.2 (Consensus: 52.1) from

52.9 in January. On balance the NBS figure paints a more positive picture than the HSBC

manufacturing PMI (released as Flash last week), which fell from 54.5 to 51.7. While
HSBC/Markit manufacturing PMI
both new orders and export orders declined sharply in HSBC PMI, new orders and export
orders were largely unchanged in the NBS PMI.

Total 51.7
Analysis of the NBS PMI is complicated by the fact that there is considerable seasonality
in NBS PMI. Hence, in general, we prefer to look at the HSBC PMI and use our own
- Output
seasonal adjustment of NBS PMI. If we use our own seasonally-adjusted data, NBS PMI
-New orders
only fell slightly from 53.8 to 53.6 in February and export orders declined slightly from
-Export orders
54.4 to 53.7 (HSBC PMI currently 48.2) and new orders actually improved slightly to
-Inventories 47.0
57.6 (HSBC PMI currently: 52.0).
Source: Markit
Hence, while both PMIs appear to have peaked and suggest growth will slow, they

currently tell very different stories about the pace of the slowdown. Looking at the NBS

PMI, it looks mostly like moderation, while the HSBC PMI suggests a more pronounced
Both PMI’s indicates some
moderation in growth
In general, we should be careful to draw conclusions on the back of the February
numbers, where seasonal adjustments will always be imperfect due to the impact from the
Chinese New Year holiday – which can be anywhere from mid-January to late-February.
From foreign trade data it is evident that exports have been extraordinarily strong in
January and very weak in February, due to these seasonal distortions. That said export
orders from other Asian PMIs (Japan and South Korea) currently do not indicate a sharp
slowdown in China.
Assessment and outlook
Note: NBS with own seasonal adjustment
Both PMIs appears to have peaked, which suggest China’s GDP growth also peaked in
Source: Reuters Ecowin ,and Markit
Q1 and should start to slow from here on. We expect GDP growth in Q1 11 of about

10.5% q/q AR , slowing to around 9.5% q/q AR in Q2 and to slightly below 8% q/q AR

in Q3. If our forecast is right, the PMIs should decline to below 50 by the end of Q2 11.
As China’s PMIs have tended to lead the rest of Asia (see chart on next page) and the rest
of the world for that matter, it also suggests we could see the peak in the PMIs in the rest
of Asia in the coming months.
Senior Analyst
Flemming J. Nielsen

+45 45128535
Important disclosures and certifications are contained from page 3 of this report.

Flash Comment

New orders plunge in HSBC PMI, but improve slightly in
Export orders also look much more resilient in NBS PMI

compared with HSBC PMI

Source: Reuters Ecowin, Markit and Danske Markets

Source: Reuters Ecowin, Markit and Danske Markets

The two PMIs have very different messages on the outlook for New order-inventory balance remains relatively favourable
China’s import growth

Source: Reuters Ecowin, Markit and Danske Markets

Source: Reuters Ecowin, Markit and Danske Markets

Signs that PMIs have peaked in the rest of Asia, except in
Inflationary pressure appears to be easing only slightly


Source: Reuters Ecowin, Markit and Danske Markets

Source: Reuters Ecowin, Markit and Danske Markets

2 | 1 March 2011

Flash Comment

This research report has been prepared by Danske Research, a division of Danske Bank A/S ("Danske Bank").
The author of the research report is Flemming J. Nielsen, Senior Analyst.
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research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed
in the research report.
Danske Bank is authorized and subject to regulation by the Danish Financial Supervisory Authority and is subject
to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske
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regulation by the Financial Services Authority are available from Danske Bank upon request.
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quality research based on research objectivity and independence. These procedures are documented in the
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3 | 1 March 2011

Flash Comment

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4 | 1 March 2011

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