Chinese Manufacturing Conditions Improve at Slowest Pace in Three Months; Job Shedding Intensifies

While Chinese manufacturers saw a further improvement in overall operating conditions in August, the pace eased to a fractional pace as both output and new order growth slowed and job shedding in the sector persisted.

Meanwhile, input costs declined for the first time in three months while increased competition for new business led manufacturers to reduce their selling prices.

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 50.2 in August, down from July's 18-month high of 51.7, signaling only a fractional pace of improvement that was the weakest in three months.

The decline in the headline index 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.

Since November 2013, 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, albeit marginally.

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.

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