Caixin China General Manufacturing PMI (September 2021)

Operating conditions stabilise in September

Key findings

• New orders return to growth

• Output falls at softer pace

• Inflationary pressures pick up amid material shortages

Data were collected 13-22 September 2021

Latest PMI data indicated that business conditions across China's manufacturing sector stabilised in September, after a slight deterioration in August. The improved headline index reading was supported by a renewed upturn in total sales and a softer reduction in output. At the same time, purchasing activity also returned to growth, while confidence towards the year ahead also strengthened. Supply chain delays persisted, however, amid sustained reports of material shortages. This in turn drove sharper increases in both input costs and output prices.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – rose from 49.2 in August to 50.0 in September. This indicated that business conditions stabilised at the end of the third quarter, after a slight deterioration in the previous month. Nonetheless, the latest reading was the second-lowest seen for the past 17 months.

The higher headline index figure was partly driven by a renewed upturn in overall sales during September. Though only slight, it was the first time new work had increased for three months. Underlying data suggested this was largely driven by firmer domestic demand, as export sales continued to decline. A number of companies commented on improved customer numbers.

Although production fell for the second month in a row in September, the rate of decline eased to only a marginal pace. Firms indicated that relatively subdued demand and material shortages had weighed on production.

Efforts to improve efficiency contributed to a slight drop in employment in September. Rising workloads placed further pressure on capacity, however, as highlighted by a solid rise in backlogs of work. Notably, the rate of accumulation was the quickest since March 2020, with firms mentioning that material shortages and shipping delays had limited their ability to process and complete orders.

Manufacturers indicated a further lengthening of delivery times for inputs during September. The rate at which lead times increased was only modest, however. The deterioration in vendor performance was often linked to limited stock availability, transportation delays due to the pandemic and stretched capacity at suppliers.

In line with the trend for new work, buying activity returned to growth in September. Meanwhile, firms maintained a relatively cautious approach to their inventories of inputs, which declined marginally. In contrast, stocks of finished goods rose slightly, which was partly driven by difficulties shipping items to clients due to pandemic-related disruption.

Inflationary pressures picked up in September, with average input costs rising sharply overall. Moreover, the rate of inflation was the quickest seen for four months, amid reports of greater energy and raw material costs. This in turn led to a solid increase in prices charged.

Companies generally anticipate output to increase over the next year, with the level of positive sentiment improving to its highest since June. Optimism was underpinned by forecasts of an end to the pandemic, planned company expansions, rising customer demand and new product launches.

Comment

Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:

“The Caixin China General Manufacturing PMI came in at 50 in September, showing that conditions in the manufacturing sector remained unchanged from the previous month. Factors including the reappearance of Covid-19 in several regions and raw material shortages continued to hurt the economy.

“Supply in the manufacturing sector continued to shrink, while demand improved. The resurgence of the epidemic in several regions and shortfalls in raw material supplies slowed production at manufacturing companies, with the gauge for output contracting for the second straight month in September. Demand improved, though marginally, with demand for consumer goods in the doldrums. Overseas demand was relatively weak as new export orders largely decreased in September. The epidemic again emerged overseas. Global shipping capacity was also clearly insufficient.

“The job market continued to come under pressure. The gauge for employment contracted for the second month in a row in September, and at a faster clip. Manufacturing enterprises reported that they were cautious about hiring new workers.

“Inflationary pressure surged. The gauge for input prices hit its highest level in four months in September, its 16th straight month in expansionary territory. The measure for output prices also reached its highest in three months. Surveyed enterprises said the rise in costs was mainly caused by a sharp increase in the prices of energy, industrial metals and electronic raw materials. The pressure of rising costs was partly transmitted downstream to consumers, as the demand was not weak.

“In logistics, delivery times grew longer. The gauge of suppliers’ delivery times remained in negative territory due to the lingering effects of some regions’ measures to contain local outbreaks of Covid-19. Consequently, inventories of finished manufacturing goods grew slightly.

“Entrepreneurs remained optimistic about the business outlook. The gauge for future output expectations bounced back to the long-term average. Manufacturing enterprises remained positive about the prospects for the market and for getting the Covid-19 outbreak under control.

“Overall, conditions in the manufacturing sector picked up in September from the previous month, though the improvement was limited. The Caixin China manufacturing PMI came in at 50, indicating the downward pressure on the economy was still high. On the one hand, the epidemic continued to impact demand, supply, and circulation in the manufacturing sector. The state of the epidemic overseas and the shortage of shipping capacity also dragged down total demand. Epidemic control measures have clearly impacted the logistics industry.

“Domestic demand varied based on different types of goods. The demand for intermediate goods and investment goods was relatively high, while the demand for consumer goods was weak, reflecting consumers’ lack of purchasing power. On the other hand, constraints to the supply side were strong as raw material prices remained high and some policy measures restricted production, squeezing employment and eventually weakening demand.

“In view of this, in the coming months, the government should focus on improving epidemic prevention and control and alleviating supply-side pressure. It should also find a balance among multiple objectives, such as promoting employment, maintaining the stability of raw material prices, ensuring a stable and orderly supply, and meeting targets for controlling energy consumption."

Contact

Dr. Wang Zhe

Senior Economist

Caixin Insight Group

+86-10-8590-5019

zhewang@caixin.com

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Associate Director

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Joanna Vickers

Corporate Communications

IHS Markit

T: +44 207 260 2234

joanna.vickers@ihsmarkit.com

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