China March PMIs And the Slowing Global Economy

Chinese stocks got a boost overnight on news that could have a broader reach through the tech sector. Alibaba announced its plans to transform into a holding company, splitting its units into six, independently-run entities. Each one of these companies would be able to seek outside funding and eventually be spun-off.The move was seen as providing a hopeful sign to investors in China, coming right after reports that Alibaba’s founder, Jack Ma, had returned to the country. The tech sector in China had been under increasing regulatory crackdown, as the government tried to reduce the influence of centralized, large tech firms. Many analysts speculated that Alibaba’s move could be replicated by other tech companies.

A boost to China’s lagging economy?

Alibaba’s move was seen as a way to both reassure investors and regulators, leading to the jump in stock prices. There is hope that it could be a sign that the regulatory crackdown that has been dragging on the Chinese economy could be coming to an end. By spinning off the assets, it would satisfy the government’s push to reduce the size and power of large tech firms. But it would also preserve capital, and could even encourage increased investment in the sector, some analysts speculated.

China has struggled to move out of the zero-covid-inspired economic doldrums. Recently, the CEO of Maersk said he was not seeing much of an increase in consumer demand in China since the lifting of restrictions. Chinese consumers seem wary to return to spending, particularly as the housing industry remains in turmoil. Housing has been one of the areas that Chinese citizens had seen as a way to store wealth.

What about the data

Focus is now turning to the rest of China’s businesses, to see if the global pattern will be replicated there. So far, Industry has lagged while services rose as the world works through increased inventory caused by slowing demand and a build up from supply chain disruptions. This has led to Services PMIs remaining in expansion, while Manufacturing PMIs have been stubbornly in contraction. With the domestic market still seen under pressure, China’s industries are still dependent on exports to foreign countries. But the global economy is shaky, and that might be reflected in the PMI figures, which could end up reversing the general optimism seen in the wake of the Alibaba announcement.

China’s March official NBS Manufacturing PMI is expected to come down to 51.2 compared to 52.6 prior, remaining in contraction. Non-Manufacturing PMI is expected to also come down, but stay much higher in expansion at 54.9 compared to 56.3 prior.

The private March Caixin measure is expected next week, but is actually expected to show an expansion in Manufacturing PMI to 52.2 from 51.6 prior. Caixin March Services PMI is expected to come down a bit to 54.8 compared to 55.0 prior.

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