The Chinese manufacturing sector contracted in
January as companies cut jobs and credit-market stresses hit confidence in the
world’s second-biggest economy.
January data signalled a deterioration of operating
conditions in China’s manufacturing sector for the first time in six months. The
deterioration of the headline PMI largely reflected weaker expansions of both
output and new business over the month. Firms also cut their staffing levels at
the quickest pace since March 2009. On the price front, average production costs
declined at a marked rate, while firms lowered their output charges for the
second successive month.
After adjusting for seasonal factors, the HSBC purchasing managers’ index (PMI) posted at 49.5 in January,
down fractionally from the earlier flash reading of 49.6, and down from 50.5 in
December. This signalled the first deterioration of operating conditions in
China’s manufacturing sector since July.
Production levels continued to increase in January,
extending the current sequence of expansion to six months. However, the rate of
growth eased to a marginal pace. While greater volumes of new work boosted
production at some firms, others reduced their output amid reports of relatively
subdued client demand that stemmed from fragile economic conditions.
Consequently, total new business was relatively unchanged from the previous
month, following a five-month sequence of growth. Meanwhile, new export orders
declined for the second month running in January, with surveyed firms mentioning
weaker demand in a number of key export markets.
Employment levels at Chinese manufacturers fell for the
third consecutive month in January. Moreover, it was the quickest reduction of
payroll numbers since March 2009. Job shedding was generally attributed by
panellists to the non-replacement of voluntary leavers as well as reduced output
requirements. Despite the marked reduction of headcounts, the level of
unfinished business at goods producers rose only fractionally over the month.
Purchasing activity increased for the sixth successive
month. That said, the degree to which input buying increased eased to a marginal
pace that was the weakest since September. Stocks of purchases and finished
goods also rose slightly in January, and for the first time in three months in
both cases. A number of panellists linked higher inventories to slower output
growth and weaker-than-expected client demand.
Production costs declined for the first time since July
2013 in January. Moreover, the rate of input price deflation was marked overall,
amid reports of lower raw material costs.
Reduced cost burdens were passed on to clients in the form
of lower output charges in January and marked the second consecutive month of
Hongbin Qu, chief economist, China & co-head of Asian
Economic Research at HSBC said: "A
soft start to China's manufacturing sectors in 2014, is partly due to weaker new
export orders and slower domestic business activities during January. Policy
makers should pay attention to downside risks and preemptively fine-tune policy
to steady the pace of growth if needed."