Chinese Manufacturing Output Suffers Sharpest Decline in 41 Months

September 03, 2012 /

China has seen the sharpest fall in its manufacturing output last month as new business decreased at the sharpest rate in nine months, sending backlogs of work to their modest decline while job shedding was recorded for the sixth month in succession.

On the price front, average input costs declined at the sharpest rate in 41 months, while the rate of output price discounting remained sharp.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The final reading of the HSBC manufacturing PMI (August) confirmed that China’s manufacturing sector still faces intensifying downward pressure.”

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) – an indicator that gives a single-figure snapshot of operating conditions in the manufacturing economy – posted 47.6 in August, down from 49.3 in July, signalling a tenth successive month-on-month deterioration in Chinese manufacturing sector operating conditions.

Moreover, the latest index reading was the lowest since March 2009. Manufacturing output in China declined during August, following a rise one month previously. Although only modest, the rate of decline in factory output was the sharpest since March.

Where a drop in manufacturing production was recorded, survey respondents commented on lower levels of incoming new business. The pace of reduction in new orders was solid, and the most marked in nine months. Meanwhile, new export orders also decreased during August, and at the sharpest rate since March 2009.

With new business decreasing further, companies depleted their volumes of work-in-hand (but not yet completed) over the month. Although only modest, the rate of decline in outstanding business was the sharpest since January 2009.

Meanwhile, staff numbers in the Chinese goods producing sector decreased during August, with the rate of job shedding the fastest in 41 months. The latest decrease in headcounts was the sixth in as many months. Reduced employment in part reflected falling new order volumes.

Purchasing activity in China’s manufacturing sector decreased for a fourth successive month during August, although the rate of decline remained marginal. Stocks of purchases fell as a result, with the latest decline the sharpest since May.

Meanwhile, muted demand for raw materials meant that average vendor performance improved for the fourth month running, albeit at a fractional rate. Anecdotal evidence provided by survey respondents suggested that shorter lead times reflected sufficient availability of inputs at vendors.

Average input costs faced by goods producers fell further during August, with the rate of decline accelerating to the fastest in 41 months. Survey respondents commented on lower prices paid for a range of raw materials.

Manufacturers in China reduced their average tariffs as a result. The pace of output price discounting was sharp, and little-changed since the month before. There were also reports of increased competition for new business.

“New export orders contracted at the fastest pace since March 2009, this, combined with a record high in stocks of finished goods sub-index, and a 41-month low employment index, suggests China’s exporters are facing increasing difficulties amid stronger global headwinds,” said Qu.

He further urged Beijing to bolster “policy easing to stabilize growth and foster job market conditions.”


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