Chinese manufacturing sector grew at its slowest rate in six months

The headline HSBC China Manufacturing Purchasing Managers’ Index (PMI) remained above the neutral 50.0 threshold in April, pointing to a further improvement in Chinese manufacturing sector operating conditions. Despite falling to a six-month low of 55.4, the index was consistent with a marked rate of expansion.

Manufacturing production rose for the thirteenth month running during April. Although still marked, the rate of expansion was the slowest since last July. Where a rise in output was signaled, panelists often linked growth to greater inflows of new business. Further gains in new work primarily reflected stronger market demand, while there were also reports that improved economic conditions had led to higher client spending. Despite easing to the slowest in five months, the rate of expansion in new work was substantial. Data signaled that export sales rose again in April. However, the rate of increase eased from March’s near-record to the slowest since July 2009. Furthermore, a much faster rise in overall new orders relative to new export business suggested that domestic demand was the primary driver of sales growth in April.

According to the latest data, backlogs of work were accumulated at the fastest rate in five years during April. Survey respondents widely reported that growth of unfinished business reflected continued gains in new work.

Employment growth in the Chinese manufacturing sector was registered for the eleventh consecutive month in April. Those respondents that reported a rise in employment generally attributed growth to higher intakes of new business and a subsequent increase in production requirements.

April data signaled that prices charged by Chinese manufacturing firms rose at a marked rate that was the fastest in three months. Stronger output price inflation largely reflected higher prices paid for a wide range of raw materials. Some respondents also mentioned that firmer demand had strengthened manufacturers’ pricing power. Meanwhile, average input prices faced by Chinese manufacturers rose sharply in April. Copper, cotton, oil and steel were all reported to have risen in price on the month. Input price inflation has now been signaled for 10 successive months.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, chief economist for China and co-head of Asian economic research at HSBC, said: “April’s PMI points to a moderate slowdown in the expansion of manufacturing activity. We see this as good news because it means that Beijing's policy tightening is starting to cool the overheated economy, which will help to contain inflationary risk in the coming quarters.”