Caixin
Nov 02, 2016 04:17 PM
ECONOMY

Emerging Sectors Slow as Manufacturing Sees Uptick, Survey Shows

An indicator that measures economic activity in China's emerging sectors decreased in October while manufacturing continued to perform well, raising questions about whether the country's shift from traditional industries toward the new economy has slowed.

The MasterCard Caixin BBD China New Economy Index (NEI) slid to 29.2 in October, down from a peak of 30.1 the previous month. The October reading, which shows that the new economy accounted for 29.2% of the overall input into the economy last month, was the second-lowest since the index was publicly released in March.

The NEI measures the labor, capital and technology that go into up-and-coming industries such as IT services, green energy, biotechnology, finance and legal services.

The decrease is mainly a result of a drop in investments, one of the NEI's three sub-indexes, which fell to 27.9 from 30.9 in September. The other two components — labor and technology — saw a combined uptick of 0.8%.

Shen Minggao, president and chief economist of Caixin Insight Group, a think tank that co-compiles the NEI, told Caixin that trends in the NEI and the manufacturing Purchasing Managers' Index (PMI) have always diverged because new and traditional industries are playing a zero-sum game.

Both the official PMI, compiled by the National Bureau of Statistics, and the Caixin General Manufacturing PMI rose to two-year highs of 51.2 for October, signaling that traditional industries, mostly comprising capital-, labor- and resource-intensive factories, are performing well.

The drop in NEI and growth in the PMI reflect the fact that China's transition toward a new economy is still slow, Shen said, adding that the country should continue to reduce excess capacity in heavy industries such as coal mining and steel making.

As of September, both the coal and steel sectors had successfully trimmed 80% of their targeted overcapacity for the year, or 224 million tons of coal and 36 million tons of steel, said Xu Kunlin, deputy secretary-general of the National Development and Reform Commission, the country's top economic planner, at a news conference in late October.

But not everything is as rosy as the figures suggest. Some shuttered mines have recently restarted operations to chase higher profits amid a surge in coal prices that is driven mainly by this reduction in production volume. Some local governments also counted long-closed steel mills as newly reduced overcapacity in a bid to create more-attractive economic figures.

The NEI is co-compiled by Caixin Insight Group and Business Big Data, a data firm based in southwestern Chengdu, in collaboration with the National Development School, Peking University. It will be issued on the second day of every month at 10 a.m. in Beijing.

Contact reporter Coco Feng (renkefeng@caixin.com); editor Calum Gordon (calum@caixin.com)

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