Chinese Factory Output and New Orders Increase at Weaker Rates

Chinese manufacturers signalled a further expansion of output in December, though the rate of growth eased
from the previous month.


New orders also rose at a fractionally slower pace, with foreign sales posting a slight decline for the first time in four months. Staffing levels fell for the second month in a row, while backlogs of work increased at a moderate pace.


After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) posted at 50.5 in December, unchanged from the earlier flash reading, and down slightly from 50.8 in November. Operating conditions faced by Chinese manufacturers have now improved for five consecutive months.


“The moderation of December's final HSBC China Manufacturing PMI was mainly due to slower output growth," says Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC. "However, the final PMI sustained the fifth above-50 reading in a row thanks to a steady increase of new orders.


Chinese manufacturers reported an increased amount of output for the fifth successive month in December. However, the rate of growth eased from November’s eight-month high, and remained modest overall. Growth was supported by a further expansion of total new work.


The degree to which new business increased was moderate, despite easing fractionally from November.


Meanwhile, new business from abroad decreased for the first time in four months, albeit marginally. Greater volumes of total new orders led to an increased amount of outstanding business across the sector.


However, the rate of backlog accumulation eased to a three-month low. Meanwhile, payroll numbers declined for the second month running in December and at a modest rate. According to anecdotal evidence, employment levels fell due to the non-replacement of voluntary leavers.


Purchasing activity rose for the fifth successive month in December and at a moderate pace. Higher production requirements were cited by a number of panellists. In contrast, stocks of pre-production goods declined for the second month in a row. That said, the rate of depletion was unchanged from the previous month and marginal.


Average input costs faced by Chinese manufacturers increased for the fifth month running in December.


Anecdotal evidence mentioned that higher purchasing prices raised production costs in the latest survey period. However, the rate of input price inflation was the weakest in the current sequence and moderate overall.


Meanwhile, selling prices declined for the first time in five months, though only at a fractional rate. According to anecdotal evidence, insufficient demand for goods led to some companies discounting their tariffs.


"The recovering momentum since August 2013 is continuing into 2014, in our view. With inflation still benign, we expect the current monetary and fiscal policy to remain in place to support growth," says Qu.

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