Chinese slow down is a reality as orders cut, jobs down, shows HSBC survey data, reports Team IFM
Hong Kong, May 10: Chinese manufacturers have signalled a further deterioration in overall operating conditions during April even as it registered a modest recovery, says independent data released on Monday, supporting government claims last week that the sector had notched slender gains during the month under review.
Both output and total new work declined over the month, albeit at weaker rates than those recorded in March, showed data released by economy tracker Markit on behalf of HSBC.
Fewer new orders led firms to cut their staffing levels at a modest pace, while purchasing activity fell for the third successive month, Markit said. “Meanwhile, both input costs and output charges fell markedly.”
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index or PMI – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 48.1 in April, down fractionally from the earlier flash reading of 48.3, and up from 48 in March .
“This signalled the fourth successive monthly deterioration in the health of the sector,” Markit said.
Last week, the National Bureau of Statistics, China’s official data compiler, said the PMI for April nosed up to 50.4 from 50.3 the month before. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction.
The HSBC-Markit report is broader-based and factors in smaller privately-owned firms. In contrast, Development Research Centre, the official data compilers in Beijing, considers only the bigger state-owned companies to prepare its report and is likely to be skewed and paint a healthier picture of the economy than it actually is.
Last month, China’s manufacturing sector notched its worst performance since last August. Alongside, the government also announced a few small steps to prop up certain sectors such as announcing tax breaks for small businesses and invest more in the nation’s railway network.
“The data remain weak despite the improvement from March,” Reuters quoted Citigroup economist Ding Shuang as saying. “But the full impact of the economic support measures hasn’t been felt yet.”
For Sun Wencun, an economist at CITIC Securities in Beijing, China’s moribund property sector remained a big concern.
“The economy is showing slight improvements due to recent policy measures but there is no sign of a bottoming out, and the trend of slowdown is continuing as the sluggish property market weighs on related industries,” Sun told Reuters.
OUTOUT DIPS
Reflecting Sun’s concerns was the Markit data that showed production at Chinese manufacturers fell for the third consecutive month in April, though at a weaker pace than in March.
Panellists generally attributed the latest reduction of output to fewer new orders, which decreased at a marked rate in April. Data suggested that sluggish domestic demand predominantly led to the fall in total new business, as new export orders declined only slightly.
A number of survey respondents said client demand was weaker because of deteriorating market conditions.
Goods producers in China cut their staffing levels for the sixth month running in April, amid reports of company downsizing policies, which stemmed from lower production requirements. Moreover, the rate of job shedding accelerated from the previous month, Markit said.
Despite reduced workforce numbers, volumes of unfinished work fell for the third successive month in April. The rate of backlog depletion was however marginal, the surveyors said.
Fewer new orders led manufacturers to cut back on their purchasing activity in April. However, the pace of reduction was only slight, having eased from that seen in March.
Firms also depleted their stocks of purchases at a marked rate in April, reflective of efforts to lower inventories in line with weaker client demand.
Average input costs faced by Chinese goods producers fell for the fourth consecutive month in April. Despite easing from March, the rate of reduction was solid overall. Factory gate prices also fell during April, and at a solid pace. Markit said anecdotal evidence suggested that charges were cut to boost client demand.
“The final reading at 48.1 in April was up slightly from 48.0 in March,” said Hongbin Qu, Chief Economist, China and Co-Head of Asian Economic Research at HSBC. “The latest data implied that domestic demand contracted at a slower pace, but remained sluggish.”
Meanwhile, both the new export orders and employment sub-indices contracted, and were revised down from the earlier flash readings. These indicate that the manufacturing sector, and the broader economy as a whole, continues to lose momentum.
“Over the past few days, Beijing has introduced more reform measures which could support growth by inducing more private sector investment. We think bolder actions will be required to ensure the economy regains its momentum,” Qu said.
FUTURE TENSE
Last Thursday’s upbeat official data more or less matches the median estimate of 50.5 predicted by a Bloomberg News survey that involved 38 analysts. The government PMI reading in March was 50.3.
The Development Research Centre data was announced a day after Premier Li Keqiang, who is grappling with a slowdown triggered by a construction sector slump in the first quarter this year, promised a leg-up for the business community.
Last month, data showed exports fell in annual terms for a second straight month in March. This was the poorest stretch since 2009.
Yet, many were enthused by Thursday’s report. Zhang Liqun, an economist at the Development Research Centre, told Reuters the latest reading indicated that the economy would stabilise and embark on a growth curve.
But there were those who disagreed. “We do not believe the economy has passed a turning point,” Reuters quoted Zhiwei Zhang, China economist at Japanese financial holding company Nomura, as saying.
Julian Evans-Pritchard, economist with research firm Capital Economics, said the situation called for a state leg-up. “I don’t think there’s an argument for further stimulus at this point,” Evans-Pritchard told The Wall Street Journal.