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
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,
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."