China’s Business Activity Stagnates Due to Slower New Order

Steven Bobson, Europe & Americas Editor
September 09, 2012 /

HSBC’s survey findings showed that business activity (covering manufacturing and services) in China was
broadly unchanged since the month before, with the index falling from 51.9 to 49.9 in August.

The stagnation of growth reflected a renewed decline in manufacturing output and a slower expansion of service sector activity. The latter was highlighted by a fall in the HSBC Business Activity Index from 53.1 to 52.0.

Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC said the survey results, plus a nine-month low of new orders subindex (including domestic and external demand) in HSBC’s manufacturing PMI, suggests that the “main risk confronting China’s economy is still to the downside. Beijing is expected to do more to counter balance the external shock.”

Behind the weaker rise in service sector activity was a slower increase in new order volumes, with the rate of expansion the weakest for a year. With new orders placed at goods producers falling in August, overall new
work declined at the fastest rate since November of last year.

Sub-par new order growth meant that capacity in China’s service sector was little tested during the month, with backlogs of work falling for the seventh month running. However, the rate of backlog depletion was only marginal. Meanwhile, a modest decline in outstanding business was recorded by goods producers during the month.

Service providers reported another month of employment growth in August. Despite accelerating to the steepest since November of last year, the rate of job creation was slightly weaker than the long-run series average.

In contrast, manufacturers reported the sharpest decline in employment since March 2009. August data signalled a solid rise in average costs faced by Chinese service providers, extending the current period of inflation to 34 months. Conversely, goods producers reported another sharp decline in input prices over the month.

Selling prices set by service sector firms were little changed since the month before, while manufacturers
reported a sharp reduction in factory gate charges.

When questioned about the prospects for activity at their units over the next 12 months, service providers in China expressed optimism regarding the business outlook. Survey respondents mentioned hopes that demand will strengthen over the coming year. There were also reports of new product developments and business expansion plans. However, the extent of positive sentiment was the lowest in eight months, and muted in the context of historical data.


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