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Asia Economy Last Updated: Nov 3, 2014 - 6:06 AM

Two Chinese manufacturing reports show trading near stagnation levels
By Michael Hennigan, Finfacts founder and editor
Nov 3, 2014 - 6:01 AM

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Two Chinese manufacturing PMI reports show that the sector was trading near stagnation levels in October.

China’s official Manufacturing PMI (purchasing managers’ index), which mainly tracks big state firms, fell to 50.8 in October from 51.1 in September, according to the China Federation of Logistics and Purchasing. The reading marked a five-month low.

In the second report, after adjusting for seasonal factors, the HSBC PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 50.4 in October, unchanged from the earlier flash reading. This was up slightly from 50.2 in September to a three-month high, but nonetheless continued to signal only a fractional improvement in the health of the sector.

The HSBC survey shows that Chinese manufacturers again signalled only a fractional improvement in overall operating conditions in October. Output and new business both expanded at the slowest rates in five months, while new export order growth weakened from September’s recent peak to a modest pace. Relatively subdued market conditions led to a further reduction of staff numbers in October, while backlogs of work rose modestly. Meanwhile, average input costs and prices charged both declined at the fastest rates since March.

Manufacturing output in China continued to increase in October, albeit at the weakest rate in the current five-month sequence of growth. Where higher output was noted, this was generally attributed to increased new order volumes. The latter also expanded at the slowest rate in five months. Growth of new business from abroad meanwhile slowed from September’s four-and-a-half year high to a moderate pace. Higher new export business was generally attributed by panellists to stronger client demand across a number of key export markets, though other firms cited relatively subdued market conditions.

Staffing levels were cut for the twelfth successive month in October, albeit at the slowest rate since July. Meanwhile, the level of work-in-hand rose at a moderate pace, with a number of panellists attributing the increase to sustained new order growth.

Purchasing activity increased across China’s manufacturing sector in October, as has been the case since May. That said, the rate of growth eased to a marginal pace that was the weakest in five months. Stocks of inputs were meanwhile depleted for the third month in a row, amid reports of ongoing inventory adjustments. In contrast, stocks of finished goods rose for the first time in six months, albeit fractionally.

Average cost burdens declined at the quickest rate since March in October, amid reports of lower prices for raw materials. Prices charged by manufacturing companies also declined markedly in October, which was partly attributed to attempts to gain new business.

Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC said:  "The HSBC China Manufacturing PMI rose to 50.4 in the final reading for October, up from 50.2 in September, and unchanged from the flash reading released earlier. Compared to the flash readings, the new orders and new export orders sub-indices saw small downward revisions, but both remained in expansion territory. Meanwhile, the employment and inventory sub-indices saw small upward revisions. Overall, the manufacturing sector continued to stabilize in October, however the sequential momentum likely weakened. The economy still shows clear signs of insufficient effective demand. We still see uncertainties, given the property downturn as well as the slow pace of global recovery, and expect further monetary and fiscal easing measures in the months ahead."

The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 420 manufacturing companies.

© Copyright 2011 by Finfacts.com

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