Manufacturing Expansion Slows Amid Weaker Foreign Demand: Caixin Survey

China’s manufacturing activity expanded for the second straight month in April, though at a slower pace, contrasting with the sluggish situation seen at the turn of the year, a Caixin survey showed Tuesday.

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives a snapshot of operating conditions in the manufacturing sector, dropped to 50.2 in April from 50.8 in the month before. From December to February, the index remained below 50.

Manufacturing accounts for nearly 30% (link in Chinese) of China’s gross domestic product (GDP). The Caixin index, one of the earliest available monthly indicators showing the latest economic conditions in China, is closely watched by investors. The higher the reading above 50 the faster the expansion, while the further below 50 the greater the contraction.

“In general, China’s economy showed good resilience in April, yet it stabilized on a weak foundation and is not coming to an upward turning point,” said Zhong Zhengsheng, director of macroeconomic analysis with consultancy CEBM Group, a subsidiary of Caixin Insight Group.

Manufacturing output and total new orders both increased at a slower pace in April, the survey showed. New export orders declined slightly after increasing in the previous month, pointing to weaker foreign demand. Amid subdued demand, stocks of purchased items declined, while stocks of finished goods decreased for the fourth straight month.

Both output charges and input prices rose at a slower pace in April, suggesting easing inflationary pressures. Some respondents linked lower selling prices to recent tax reforms, the survey said.

The employment subindex fell back into contractionary territory in April after hitting a more-than-three-year high in March, which is a high season for recruitment following the Lunar New Year holiday. “Efforts to contain costs and the non-replacement of voluntary leavers led to a slight fall in manufacturing workforce numbers,” the survey said.

“Encouragingly, business confidence regarding the one-year outlook for production improved to an 11-month high,” the survey said. “Positive forecasts were often linked by companies to new product launches, planned company expansions and expectations that global demand conditions will improve.”

In the first quarter of this year, China’s economic conditions were “better than expected,” although downward pressure has remained, a meeting of the 25-member Politburo chaired by President Xi Jinping said on April 19. Analysts said policymakers have been shifting focus away from more stimulus and back towards structural reform.

“The Politburo meeting signaled that in the first quarter of this year China had adjusted its countercyclical policy marginally,” Zhong said. “As pressure on the economy remains in the second quarter, we expect that there will be minor adjustments to the policy but not a turnaround.”

China’s official manufacturing PMI, released by the National Bureau of Statistics on Tuesday, fell to 50.1 in April from 50.5 the month before. The Caixin manufacturing PMI, sponsored by Caixin and compiled by data analytics firm IHS Markit Ltd., focuses on light industry, while the official one focuses on heavy industry. The geographic distributions of the companies covered in the two surveys are also different.

The Caixin China General Services Business Activity Index for April, which tracks the growing services sector, will be released on May 6.

Contact reporter Liu Jiefei (jiefeiliu@caixin.com)

Read more about Caixin’s economic indexes.