Official Chinese PMI Dips While Prices Remain Strong (FXI)

Beijing’s gauge of Chinese manufacturing activity slipped in line with the private survey in December, revealing that the country’s crucial industrial boom is decelerating.

The official PMI slid to 53.9 from November’s reading of 55.2, emulating last week’s somewhat disappointing data from HSBC.

Market watchers were quick to point out that any score above 50 still reflects expansion, but there are still nuances to consider. For one thing, China has raised interest rates a total of 50 basis points (0.50%) in the last three months, and so any economic slack showing up in recent data will likely deepen for at least a few months.

For another, while the Shanghai market is celebrating news that the input costs component of the official PMI moderated slightly, this wholesale inflation gauge remains significantly elevated at 66.7 — better than the 73.5 posted in November, but still an ominous reminder that Beijing’s best efforts have yet to translate into real improvement on the inflationary front.

Should inflation remain elevated, the Chinese government will likely feel compelled to make further — and possibly more aggressive — moves on the rate policy front, or even kick in the long-dreaded price controls to smother the once-ebullient local economy.

But for now, traders are hoping that a soft landing is in sight. If so, broad funds like the iShares FTSE China 25 Index ETF (NYSE:FXI) may hold up well.

If not, Shanghai could easily go back on the retreat.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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