Overseas chaos sees mainland factories heading for another contraction

PUBLISHED : Wednesday, 24 August, 2011, 12:00am
UPDATED : Wednesday, 24 August, 2011, 12:00am


Mainland manufacturing might contract for the second consecutive month as turbulence on overseas markets batters confidence.

The monthly HSBC/Markit Economics flash purchasing managers index (PMI) survey, which previews official findings due on September 1, improved slightly, rising to 49.8 this month from 49.3 in July. But it remained below 50, signalling manufacturing is still contracting.

Some economists said operating conditions in the factory sector worsened this month and manufacturers were more pessimistic.

'Financial and economic woes are troubling our key markets in the United States and Europe,' Federation of Hong Kong Industries deputy chairman Stanley Lau Chin-ho said yesterday. 'Together with other unfavourable factors, we don't think the sector will see any improvement at least for the rest of this year.'

He said the gloom was exacerbated by the yuan's recent record highs against the US dollar, soaring raw material prices, rising wages and Guangdong's policy of forcing manufacturers to upgrade operations.

Jiang Yaoping, vice-minister for commerce, said yesterday that the mainland's export growth would slow in the second half of this year due to 'complicated market conditions abroad, higher costs and punishing competition'.

Jiang, meanwhile, said the mainland would spare no effort to meet Vice-President Xi Jinping's target of US$8 trillion in imports by 2015, up from US$1.4 trillion last year.

The flash PMI, which is based on about 90 per cent of total PMI survey responses, showed yesterday that output, new orders, new export orders, employment, and stocks of purchases and finished goods were contracting, albeit at a slower rate.

It showed inflation in output and input prices had also accelerated.

Bank of America-Merrill Lynch economist Lu Ting said the flash PMI result was better than the market speculation of 45.

'We expect the [official] PMI to remain above 50, although the chance of it dipping below 50 is increasing,' Lu said of the PMI compiled by the National Bureau of Statistics.