China's factory activity shrinks to 7-month low in June: HSBC

BEIJING: China’s factory activity shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009, a private sector survey showed, underlining the risk of a lurch lower for the Chinese economy.

The HSBC Purchasing Managers’ Index (PMI) fell to 48.2 after seasonal adjustments, its lowest since November 2011, and little changed from a flash, or preliminary, estimate of 48.1. The final reading in May was 48.4.

June was the eighth straight month of a reading below 50, the threshold dividing expansion from contraction in the survey methodology.

[caption id=“attachment_363682” align=“alignleft” width=“380” caption=“Reuters”]  [/caption]

China’s official PMI, released on Sunday, also fell to a seven-month low in June. However, the official PMI was 50.2, indicating the sector was still expanding.

More from Economy

Inflation likely to be a big focus area for budget 2024, say sources Explained: Will the Bank of Japan break tradition and raise interest rates?

The two indexes often give divergent readings as the official PMI surveys mainly big, state-backed firms, while the HSBC PMI takes the pulse of more smaller, private-sector companies.

But both readings underline speculation that Beijing will relax monetary and fiscal policies further to boost domestic activity to compensate for weakening foreign demand for China’s factory goods - a problem for the world’s biggest exporter.

The survey said export demand from Europe and North America was especially weak.

“We expect more decisive easing efforts to come through in coming months,” said Qu Hongbin, an economist at HSBC.

“It is all about growth and employment,” Qu said. “As external demand has weakened and domestic demand hasn’t shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown.”

Like the official PMI, the HSBC PMI showed new orders and new export orders struggling in June below the 50-point threshold, suggesting demand was shrinking.

The new export orders sub-index lost a hefty 2.7 points to sink to a 39-month low of 45.8.

The new orders sub-index also fell, although not as sharply as new export orders. But the combined drop in export and domestic orders was the biggest so far this year, the survey said.

Sliding production cooled prices. Average production costs fell at their steepest rate since March 2009. Prices of finished goods fell at the fastest pace in 42 months, although in part due to competitive pressures between producers.

Crucially, it said there were also signs that factories were saddled with excess capacity as backlogs of work fell slightly as factories received fewer new orders.

Factory employment shrank for the fourth straight month in June, though the employment sub-index rebounded to a three-month high from May’s 38-month low.

BEIJING: China’s factory activity shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009, a private sector survey showed, underlining the risk of a lurch lower for the Chinese economy.

The HSBC Purchasing Managers’ Index (PMI) fell to 48.2 after seasonal adjustments, its lowest since November 2011, and little changed from a flash, or preliminary, estimate of 48.1. The final reading in May was 48.4.

June was the eighth straight month of a reading below 50, the threshold dividing expansion from contraction in the survey methodology.

China’s official PMI, released on Sunday, also fell to a seven-month low in June. However, the official PMI was 50.2, indicating the sector was still expanding.

The two indexes often give divergent readings as the official PMI surveys mainly big, state-backed firms, while the HSBC PMI takes the pulse of more smaller, private-sector companies.

But both readings underline speculation that Beijing will relax monetary and fiscal policies further to boost domestic activity to compensate for weakening foreign demand for China’s factory goods - a problem for the world’s biggest exporter.

The survey said export demand from Europe and North America was especially weak.

“We expect more decisive easing efforts to come through in coming months,” said Qu Hongbin, an economist at HSBC.

“It is all about growth and employment,” Qu said. “As external demand has weakened and domestic demand hasn’t shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown.”

Like the official PMI, the HSBC PMI showed new orders and new export orders struggling in June below the 50-point threshold, suggesting demand was shrinking.

The new export orders sub-index lost a hefty 2.7 points to sink to a 39-month low of 45.8.

The new orders sub-index also fell, although not as sharply as new export orders. But the combined drop in export and domestic orders was the biggest so far this year, the survey said.

Sliding production cooled prices. Average production costs fell at their steepest rate since March 2009. Prices of finished goods fell at the fastest pace in 42 months, although in part due to competitive pressures between producers.

Crucially, it said there were also signs that factories were saddled with excess capacity as backlogs of work fell slightly as factories received fewer new orders.

Factory employment shrank for the fourth straight month in June, though the employment sub-index rebounded to a three-month high from May’s 38-month low.

Reuters