Q: How should we interpret the resilience shown by the US and China's Purchasing Managers' Index (PMI) against the backdrop of high oil prices? A: On April 30, China’s National Bureau of Statistics released the manufacturing PMI data for April. The manufacturing PMI registered 50.3%, a slight decline of 0.1 percentage points from the previous month but still above the 50-point threshold that separates expansion from contraction. Notably, the new export orders sub-index rose to 50.3%, marking a seasonal upturn and crossing the expansion-contraction line for the first time in nearly 23 months. Recent US PMI data also showed strength. The ISM manufacturing PMI remained at 52.7%, staying above the expansion threshold throughout the year, while the S&P Global manufacturing PMI, which better reflects conditions for small and medium-sized enterprises, climbed 1.7 percentage points to 54%, reaching its highest level since May 2022. Both US and Chinese manufacturing sectors demonstrated notable resilience. It is worth noting that these positive readings emerged against a macroeconomic backdrop marked by US-Iran tensions and persistently high oil prices, with manufacturing in both countries appearing less affected than previously anticipated.

A closer look at the data details reveals that businesses stockpiling inventory in anticipation of future supply shortages played a key role in driving PMI resilience. In China, the raw materials inventory index rose by 1.6 percentage points to 49.3% in April, while the purchasing volume index increased to 51.1%. Despite a marginal slowdown in new orders, companies continued to increase procurement, indicating ongoing inventory replenishment. US data similarly pointed to inventory accumulation and significantly slower supplier delivery times. The ISM supplier deliveries sub-index rose sharply to 60.6% in April. Against the backdrop of sustained high prices, rising inventories and falling customer stock levels also suggest precautionary stockpiling by firms. S&P Global explicitly noted in its report that part of the strong performance was linked to clients building inventories ahead of potential supply disruptions. From this perspective, stockpiling behavior has somewhat distorted the PMI’s reflection of underlying demand.

At the same time, AI-related investment has become an important driver supporting manufacturing in both the US and China. AI capital expenditure is bolstering manufacturing activity through increased orders for equipment and intermediate goods, as well as continued expansion in high-tech production. The latest corporate earnings reports show that major US tech firms have further raised their AI capital spending plans this year. Manufacturing order growth in the US technology sector continues to climb, significantly outpacing consumer-related supply chains. According to Huachuang Securities, this phenomenon has previously only been observed during the dot-com bubble. US first-quarter GDP data showed that private non-residential fixed investment grew at an annualized rate of 10.4% quarter-on-quarter, a substantial increase from the previous quarter, contributing more than half of the overall GDP growth. Chinese data also indicated that the PMI for high-tech manufacturing rose further to 52.2% in April, while equipment manufacturing PMI stood at 51.8%, both significantly higher than the overall manufacturing PMI. This reflects stronger order and production momentum in AI-related sectors such as electronics, communications, and specialized equipment.

In fact, in the short term, the impact of crude oil supply shortages is inherently smaller for the US and China compared with other nations. The US is a net exporter of crude oil, while China had built up substantial crude reserves prior to recent conflicts and can source diversified supplies from countries such as Russia. As a result, short-term oil supply constraints are unlikely to significantly disrupt manufacturing production in either country. In contrast, developing economies such as India have been more severely affected during this period of high oil prices. Without the support of strong AI industry investment, their capital market performance has also been noticeably weaker.