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Asia Economy Last Updated: Sep 1, 2014 - 6:49 AM

China's manufacturing sector moved towards stagnation in August
By Finfacts Team
Sep 1, 2014 - 5:41 AM

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China's manufacturing sector moved towards stagnation in August with factory output slowing, according to two PMI (purchasing managers’ index) measures published Monday.

The official PMI, mainly reflecting the activity of big state firms, dropped to 51.1 in August from 51.7 in July, which was a 27-month high on rebounding exports, the China Federation of Logistics and Purchasing said. Meanwhile, HSBC Holdings Plc, the global bank, reported that its China manufacturing PMI for August declined to 50.2 from 51.7 in July. Both output and new orders at the sample of 420 smaller private firms recorded slowing expansions in August, HSBC said, while job shedding intensified.

The no-change index level is 50.

The decline in the HSBC headline index, that is produced by Markit, partly reflected slower expansions of both output and total new business during August. The rates of production and new order growth were moderate overall, having eased from 16- month highs in July. Data suggested that client demand softened both at home and abroad, as new export work also rose at a weaker pace in August. While some panellists mentioned that improving market conditions and new client wins boosted new work intakes, others commented on relatively subdued client demand.

As has been the case since November 2013, Markit said that manufacturing firms in China continued to reduce their staffing levels in August. Furthermore, the rate of job shedding was the quickest in three months and moderate overall. Companies that reported lower workforce numbers partly attributed this to the implementation of cost reduction policies. Despite lower staff numbers, backlogs of work rose for the third successive month in August, albeit marginally.

In response to greater volumes of new work, firms raised their purchasing activity for the fourth month running in August. That said, the rate of growth weakened from July and was modest overall. In contrast, stocks of purchases declined moderately over the month following a slight expansion in July. A number of respondents increased their use of current inventories as part of ongoing efforts to readjust inventory levels.

Average input costs faced by Chinese manufacturers declined in August. However, the rate of reduction was only slight. Selling prices set by manufacturers also declined, albeit marginally. Anecdotal evidence suggested that a number of companies reduced their selling prices as part of efforts to increase new business.

Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC said: "The HSBC China Manufacturing PMI eased slightly to 50.2 in the final reading for August from the flash reading of 50.3. The revisions were mixed, with upward revision to the new export orders and output sub-indices but downward revisions to the employment and input prices indices. Although external demand showed improvement, domestic demand looked more subdued. Overall, the manufacturing sector still expanded in August, but at a slower pace compared to previous months. We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery."

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