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China manufacturing activity tumbles

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China manufacturing activity tumbles

Operating conditions deteriorate at fastest pace since 2009.

There’s more trouble on the China manufacturing front.

According to the closely-followed Caixan/Markit monthly manufacturing survey, Chinese manufacturers saw the quickest deterioration in operating conditions for over six years in August.

August data signaled a second successive monthly fall in total new work placed at Chinese goods producers, with the rate of contraction quickening to a 17-month record.

Adjusted for seasonal factors, the Purchasing Managers’ Index – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – registered at 47.3 in August, up slightly from the earlier flash reading of 47.1, but down from 47.8 in July. The PMI has now posted below the neutral 50.0 value for six successive months, with the latest deterioration in operating conditions the sharpest since March 2009.

August data signaled a second successive monthly fall in total new work placed at Chinese goods producers, with the rate of contraction quickening to a 17-month record. Panelists generally suggested that deteriorating market conditions had weakened client demand both at home and abroad during August. Furthermore, new export business declined at the steepest rate in just over two years.

Softer client demand led manufacturers to scale back their production again in August, with the latest reduction in output the quickest seen since November 2011. Lower production requirements contributed to a further decline in purchasing activity in China’s manufacturing sector in August. Moreover, the rate of reduction quickened since July to the steepest recorded since March 2009. As a result, stocks of inputs also fell over the month, albeit at a modest rate. In contrast, inventories of finished goods rose slightly in August, with a number of companies suggesting that fewer sales had led to an accumulation of post-production stocks.

Chinese manufacturing companies reduced their workforce numbers for the twenty-second month in a row in August. Furthermore, the rate of job shedding accelerated since July to a pace that was similar to June’s 76-month record. Meanwhile, unfinished business increased for the fourth successive month, albeit only marginally.

Manufacturing firms in China signaled a further fall in total input costs in August, with a number of monitored companies linking the decline to lower raw material costs. The rate of input price deflation was solid overall, despite easing since July.

In line with the trend for cost burdens, Chinese goods producers reduced their factory gate charges in August, thereby extending the current sequence of deflation to 13 months. Anecdotal evidence suggested that firms lowered their tariffs in order to pass on lower input costs to clients, but also as part of efforts to attract new business.

 

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