Factory production falls for 8th straight month

PUBLISHED : Tuesday, 03 July, 2012, 12:00am
UPDATED : Tuesday, 03 July, 2012, 12:00am


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Manufacturing activity on the mainland contracted in June for the eighth consecutive month as small companies grappled with a worsening business environment amid weaker external demand.

The HSBC Purchasing Manager's Index (PMI) fell to 48.2, down from 48.4 in May. A PMI reading above 50 indicates growth in manufacturing activity, while a reading below 50 indicates contraction.

The survey, sponsored by HSBC and compiled by specialist research company Markit, gives a different figure from the PMI released jointly by the National Bureau of Statistics and the China Federation of Logistics and Purchasing, which shows manufacturing activity is growing.

The official PMI, published on Sunday, dropped to 50.2 from 50.4 in May. It hit a seven-month low, but still showed an improving economy.

'Mainland companies are facing increasing difficulties in shoring up exports,' Shenyin Wanguo Securities said in a research report.

'The deteriorating business environment is particularly making life extremely difficult for small firms.'

It is estimated that 70 per cent of respondents in the official survey are large companies. HSBC's PMI is believed to be more representative of the economic health of the mainland as a whole because 30 per cent of it is made up of large companies, another 30 per cent medium-sized firms, and 40 per cent small businesses.

'A lack of demand was behind the latest deterioration in operating conditions, with total and foreign new orders falling at accelerated rates in June,' HSBC said.

'New export orders placed at goods producers dropped at the steepest rate in over three years.'

Thousands of small companies manufacture goods ranging from shoes to lighting products for Western markets. A shrinking demand from abroad amid the euro-zone crisis is plaguing small factories, which are unable to compete with big state-owned rivals in the domestic market.

Small, private businesses are also seeing smaller profit margins because of rising labour costs.

Both the government and HSBC surveys show Beijing may need to roll out fresh stimulus measures to bolster the economy. The central bank slashed interest rates last month for the first time in four years and is expected to cut the rates twice more this year. Beijing has also simplified the tax rebate system to help exporters.