Econintersect: Both of China’s PMI numbers declined in June. The official PMI 
slipped to 50.1 (50.8 in May) and the HSBC/Markit PMI had its second consecutive month below 50 with a reading of 48.2, down from 49.2 in May. The official PMI is from data collected from large companies, many state owned. The HSBC number is collected from mostly privately owned small and mid-sized businesses. The HSBC PMI is more sensitive to the level of exports.
The numbers indicate that China’s manufacturing sector is on the edge of a contraction or has already entered one. The number 50 marks the boundary between contraction and expansion.
The key points from the HSBC/Markit report:
- Output contracts for first time since last October
- New export orders fall at the joint-fastest rate since March 2009
- Job shedding intensified
Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
“Falling orders and rising inventories added pressure to Chinese manufacturers in June. And the recent cash crunch in the interbank market is likely to slow expansion of off-balance sheet lending, further exacerbating funding conditions for SMEs. As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months.”
The summary from the HSBC/Markit press release:
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 48.2 in June, down from 49.2 in May, signalling a modest deterioration of business conditions.
Operating conditions have now worsened for two successive months.
Chinese manufacturers signalled a first reduction of output for eight months in June. The rate of contraction was modest, and generally attributed to weaker client demand, as total new orders declined for the second month in a row. New business from abroad also fell in June, with the rate of contraction the fastest since last September, and the joint-sharpest in over four years.
Anecdotal evidence suggested that reduced client demand, particularly from Europe and the US, led to fewer new export orders.
Fewer new orders enabled manufacturers to reduce the level of work-in-hand for the second month in a row, albeit marginally.
Staff numbers also decreased in June. The pace of job shedding was the fastest since last August, and joint-fastest since the depths of the financial crisis in early 2009. Anecdotal evidence implied that job cuts were due to a combination of employee resignations and weaker trends in output and new orders.
Purchasing activity decreased for the second consecutive month during June, and was generally associated with lower production requirements. That said, the rate of reduction was slight. Concurrently, stocks of purchases fell for the fifth month in a row, and at the quickest pace in the current sequence.
Average input costs faced by goods producers decreased for the fourth successive month and at a solid pace. According to anecdotal evidence, lower raw material costs drove the overall reduction.
Manufacturers passed on their savings to clients by cutting their average tariffs sharply over the month. A number of panellists also suggested that charges were discounted in an effort to boost client demand.
Finally, suppliers’ delivery times shortened for the third month in a row, albeit slightly. Shorter lead times were linked to requests made by firms to vendors for faster deliveries.
Sources:
- Operating conditions deteriorate at quickest pace since last September (HSBC Purchasing Managers’ Index Press Release, 01 July 2013)
- China June official PMI slips to 50.1, adds to growth worries (Langi Chiang and Koh Gui Qing, Reuters, 30 June 2013)
- China HSBC PMI slips to nine-month low of 48.2 in June (Langi Chiang and Koh Gui Qing, Reuters, 01 July 2013)
