China’s Output Falls at Fastest Pace Since March
Data in September signalled a stronger decline in Chinese manufacturing output, as the volume of new orders fell for the eleventh consecutive month.
New export orders declined at the sharpest rate in 42 months amid reports of weak international demand, while lower workloads were linked to a fall in backlogs of work.
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “Chinese manufacturing growth is likely to be bottoming out. However, the sharper contraction of new export orders and the lingering pressures on job markets mean that Beijing should step up easing to support growth and employment. Fiscal measures should play a more important role in the coming months.”
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 47.9 in September, up slightly from 47.6 in August, and signalling an eleventh successive month-on-month deterioration in Chinese manufacturing sector operating conditions.
However, the latest data signalled the rate of deterioration eased marginally. The rate of reduction in manufacturing output in China accelerated during September, signalling the strongest contraction since March.
A number of respondents that reported a fall in production levels attributed this to lower order volumes as both domestic and international demand weakened. However, the rate of reduction in new export orders remained stronger than the decline in overall new orders. Panellists commented on tough trading conditions in a number of key trading markets.
Consequently, backlogs of work at manufacturing firms were depleted for the second month in a row, although the reduction in work-in-hand (but not yet completed) was only marginal during September. Staff numbers decreased for the seventh month in a row. However, the rate of job shedding was relatively modest in September, as a majority of goods producers (nearly 85%) indicated no change in employment levels.
Any job cuts were generally linked to reduced production requirements. Purchasing activity fell in China’s manufacturing sector for a fifth successive month during September. The rate at which input buying declined accelerated to the fastest since February.
As a result, stocks of purchases fell in September at the quickest rate since May, as companies sought to utilise inventories wherever possible in production. Meanwhile, average lead times improved for the fifth consecutive month. Survey respondents reported that muted demand for inputs and fewer orders placed to vendors resulted in quicker delivery times.
Input costs faced by manufacturers fell in September for the fifth month running. The rate of decline was slower than in August, but still remained sharp. Panellists attributed this to lower prices for a variety of raw materials. As a result, Chinese manufacturers reduced their average output charges accordingly. A number of firms also commented on increased competitive pressures.