China HSBC PMI deteriorates for third consecutive month

The final reading of the HSBC China Manufacturing PMI in March confirms the weakness of domestic demand; Q1 GDP growth is may fall below the annual growth target of 7.5%

April 01, 2014 7:55 IST | India Infoline News Service
Business conditions in China’s manufacturing sector deteriorated for the third consecutive month in March. The latest deterioration was the strongest since July 2013, and reflected quicker reductions of both output and total new orders, despite new business from abroad expanding for the first time in four months. Firms cut their workforce numbers and purchasing activity, while both input and output prices fell to the greatest extent since August 2012.
After adjusting for seasonal factors, following the recent Chinese New Year festival, the HSBC Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 48.0 in March, down from 48.5 in February, and signalled a moderate deterioration of the health of the sector. Business conditions have now deteriorated for three months in a row.
Chinese manufacturers reported lower intakes of new work in March, extending the current sequence of reduction to two months. Reports from panellists suggested that deteriorating market conditions weighed on client demand in the latest survey period. Data suggested that lower volumes of new work were largely a result of softer domestic demand, as new export orders increased for the first time in four months during March. Stronger client demand in Europe and the US was cited by a number of survey respondents.
Manufacturers cut their production levels for the second successive month in March, with panellists largely linking the fall to fewer new orders. Moreover, the rate of contraction quickened from February to the strongest
since November 2011.
Chinese goods producers reduced their purchasing activity in March. Furthermore, the rate at which input buying decreased was the strongest since September 2012. In contrast, stocks of finished goods rose in March due to fewer sales.
Lower intakes of new work enabled firms to reduce their level of outstanding business in March. That said, the rate of backlog depletion was only slight. Meanwhile, staffing levels declined for the fifth month running, though the rate of job shedding eased to a marginal pace.
Weaker demand for inputs led to a slight improvement in vendor performance during March. Panellists reported that suppliers cut their charges in response to reduced demand, leading to the sharpest reduction in cost burdens since August 2012. Firms passed on lower production costs to clients and cut their selling prices at a similarly sharp pace.
Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of
Asian Economic Research at HSBC said: “The final reading of the HSBC China Manufacturing PMI in March confirmed the weakness of domestic demand conditions. This implies that 1Q GDP growth is likely to have fallen below the annual growth target of 7.5%. We expect Beijing to fine-tune policy sooner rather than later to stabilise growth.”

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