At 49.4, down from 50.4 in June, the seasonally adjusted headline HSBC China Manufacturing Purchasing Managers’ Index posted below the neutral 50.0 threshold in July, pointing to the first month-on-month deterioration in Chinese manufacturing sector operating conditions since March 2009. This marked a distinct turnaround from the strong sector performance seen at the beginning of 2010, and continues the cooling trend observed since that peak.
Manufacturing production in China fell again in July, decreasing at a fractional rate that was slightly slower than in the preceding month. Those panelists that reported a decline in output often linked this to reduced intakes of new business, which fell for the second month in succession. Furthermore, the rate of decline in new work accelerated to the quickest since March 2009, with many panelists citing lackluster client demand as having negatively impacted upon new order books. New export business also fell in July, contrasting with near-record rates of growth seen throughout the first quarter of 2010.
According to the latest data, outstanding business rose at a negligible rate in July, with a number of respondents reporting that they had sufficient capacity to deal with both new and existing business.
Staffing levels in the Chinese manufacturing sector rose again in July, extending the current period of growth to fourteen months. The rate of job creation was nevertheless only slight, and slower than in the preceding month. Company expansion plans were cited by panelists as having supported employment growth in the latest survey period. Conversely, those firms that noted a drop in staff numbers widely commented that employees had left due to low salary payments.
Average input costs fell further in July, decreasing at a solid rate that was the fastest since May 2009. As a result, factory gate charges fell for the second month running in July. Moreover, the solid rate of price discounting also reflected increased competition for new business. The PMI measures for output charges and input prices have fallen almost 17 and 30 points, respectively, since the start of the year, highlighting the rapid nature of the slowdown in inflationary pressure.
Commenting on the China Manufacturing PMI survey, Hongbin Qu, chief economist, China, and co-head of Asian economic research at HSBC, said: “China manufacturing PMI came in at 49.4, the first sub-50 reading in 16 months. This suggests that manufacturing production growth continued to decelerate last month, reflecting the combined effect of credit tightening, property cooling measures and Beijing's measures to cut capacity in energy-intensive sectors. However, there is no need to panic because this is just a slowdown, not a meltdown. We still expect the economy to rely on continued investment into ongoing infrastructure projects, public housing construction and resilient private consumption to grow by around 9 percent in the second half of 2010 and 2011.”
