The recovery of China’s manufacturing sector lost some momentum in May, highlighted by a drop in the headline HSBC China Manufacturing Purchasing Managers’ Index – a seasonally adjusted index designed to measure the performance of the manufacturing economy – to 52.7 from a revised figure of 55.2 in April. May’s reading was the lowest in eleven months and indicative of only a modest improvement of operating conditions in the manufacturing sector.
Manufacturing output in China rose again in May. However, the rate of expansion was only modest, and eased to the slowest in 12 months in line with a weaker rise in new business. The slower expansion of new orders was reportedly reflective of relatively lackluster demand from both home and external markets. New business received from abroad rose at the least marked rate in 10 months, although growth was still above the historical series average.
Backlogs of work in the Chinese manufacturing sector were accumulated at a solid rate in May, extending the current period of growth to fourteen months. Those respondents that reported an increase in unfinished business often mentioned that resources had been assigned to meet higher intakes of new business.
Chinese manufacturing employment rose again in May, although the pace at which firms added to their workforce numbers was only slight, and eased to the slowest since June 2009. According to respondents, employment growth reflected greater inflows of new business. Those panelists that reported a reduction in employment linked this to restructuring efforts and, in some cases, an increased number of retirements.
According to the latest data, the average cost of Chinese manufacturers’ purchases rose substantially in May, albeit at a markedly slower rate that was the weakest in seven months. Prices paid for grain, oil and steel were all reported to have risen. Input price inflation has now been signaled for 11 months in succession. However, firms were unable to pass on the full extent of cost rises to clients, with output prices increasing at the slowest rate since last October. This primarily reflected higher competition for new business, while there were reports that some firms had reduced their factory gate prices to satisfy client requests.
Commenting on the China Manufacturing PMI survey, Hongbin Qu, chief economist for China and co-head of Asian economic research at HSBC, said: “The slowdown in the headline manufacturing PMI suggests that the overheating risk is likely to ease as tightening measures filter through. That said, we see robust economic growth without double-dip risks not least because of massive existing infrastructure investment and resilient private consumption.”