Caixin
Aug 01, 2018 09:45 AM
ECONOMY

Manufacturing Growth Loses Step, Caixin Index Shows

Workers test out wind turbine blades as they leave the factory of a wind power equipment manufacturer in East China’s Jiangsu province. Photo: VCG
Workers test out wind turbine blades as they leave the factory of a wind power equipment manufacturer in East China’s Jiangsu province. Photo: VCG

China’s manufacturing activity expanded at a slower pace in July, with output and new business experiencing lower rates of growth amid subdued external demand, a Caixin survey showed Wednesday.

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), an indicator that gives a snapshot of operating conditions in the manufacturing sector, slipped to 50.8 in July from June’s 51.0. The reading had not been this low since November 2017.

As one of the first available monthly indicators following the trends of the world’s second-largest economy, the Caixin manufacturing PMI is closely watched by investors. A number above 50 indicates an expansion in activity, while a figure below that signals a contraction.

In July, the subindexes for output and new orders remained in expansionary territory, but both slipped, the survey showed. New export orders shrank at a faster pace, marking the fourth straight month of contraction.

“New export orders shrunk at the fastest pace since June 2016, indicating the export market continued to deteriorate,” said Zhong Zhengsheng, director of macroeconomic analysis with consultancy CEBM Group, a subsidiary of Caixin Insight Group.

The outlook of demand from overseas has worsened amid the escalation of the trade war. On July 6, the U.S. started collecting additional 25% tariffs on Chinese goods worth $34 billion, triggering the latter’s retaliatory tariffs. The U.S. is also considering additional tariffs on Chinese products worth another $16 billion. On July 10, Washington escalated the trade war by releasing a list of $200 billion worth of Chinese products that could be subject to a new 10% tariff.

Cautiously optimistic

In July, China’s goods producers remained optimistic that production would rise over the next year, but the reading of the subindex for future output was close to June’s six-month low, the survey showed.

Inventories of finished items shrank for a third month and at a steeper rate, while stocks of purchased items started expanding again, according to the survey. Zhong viewed this as a positive sign that companies had reduced their stocks of finished products and replenished stocks of purchases.

Input prices and output charges continued to grow, though at a slower pace, pointing to easing pressure on prices, Zhong said. Manufacturers pinned the change on rising raw material prices, the survey said.

Employment continued to contract in July, but the rate of job losses eased, the survey showed.

China’s official manufacturing PMI, released by the National Bureau of Statistics on Tuesday, fell to 51.2 in July, its weakest reading since February.

The Caixin manufacturing PMI, sponsored by Caixin and compiled by international data analytics firm IHS Markit Ltd., focuses on light industry, while the official manufacturing PMI focuses on heavy industry. The two surveys also cover companies with different geographic distributions.

The Caixin China General Services Business Activity Index, which tracks the country’s growing services sector, is scheduled to be released on Friday.

Contact reporter Lin Jinbing (jinbinglin@caixin.com)

Read more about Caixin’s economic indexes.

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