Chinese Manufacturing Output in 5 Month High
July data showed that manufacturing sector operating conditions deteriorated at a slower rate, as factory production rose – for the first time in five months – and new business decreased at a weaker pace.
Inventories of inputs also fell to a weaker extent, while supplier delivery times shortened at only a marginal rate. However, manufacturing
employment declined at the sharpest rate in over three years.
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted 49.3 in July, up from 48.2 in June, signalling only a marginal deterioration in Chinese manufacturing sector operating
conditions. Moreover, the month-on-month increase in the index was the largest in 21 months.
Manufacturing production in China increased during July, ending a four-month period of contraction. Despite reaching a nine-month high, the index measuring monthly trends in manufacturing output was at a level indicative of only a marginal rate of expansion.
Another decline in the volume of new business placed at China’s goods producers was signalled by July’s survey. The pace of reduction in new work was only modest, however, and the weakest in three months. New export business also decreased at a slower rate.
Latest survey findings signalled a renewed rise in work awaiting completion, although the rate of backlog accumulation was only slight.
Meanwhile, companies continued to reduce their staff numbers during the month, with the pace of job shedding accelerating to the sharpest in 40 months. Manufacturers commented on employee retirements, company downsizing and the need to streamline workforce numbers in response to falling new order volumes.
Average vendor lead times shortened in July, for the third month running, although the rate of improvement in supplier performance was marginal.
Meanwhile, a further decline in purchasing contributed to a reduction in stocks of pre-production goods. However, the rate of inventory depletion was the slowest in the current eight-month period of decline.
Average input costs faced by manufacturing firms decreased for the third successive month in July, mainly reflecting lower raw material prices. Companies also mentioned reduced prices paid for fuel.
Despite easing slightly from one month ago, the rate of reduction in average costs remained sharp. Consequently, companies passed on reduced costs to clients through lower average tariffs.
Some respondents also mentioned competitive pressures. The pace of output price discounting was steep, albeit slightly weaker than in June.
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “Final manufacturing PMI confirmed only a modest improvement of manufacturing conditions thanks to the initial effect of the earlier easing measures.
“But this is far from inspiring, as China’s growth slowdown has not been
reversed meaningfully and downside pressures persist with external markets continuing to deteriorate. We still expect Beijing to step up policy easing in the coming months to support growth and employment.”