China economy

Mixed messages from surveys on state of Chinese manufacturing

Independent study suggests the sector steadied in October, a day after an official survey painted a slightly gloomier picture for factories in world’s second-biggest economy

PUBLISHED : Wednesday, 01 November, 2017, 3:16pm
UPDATED : Wednesday, 01 November, 2017, 5:35pm

Chinese factory activity stabilised in October, according to independent data released on Wednesday, one day after a disappointing official reading suggested output growth had slowed.

The world’s second-largest economy registered 6.8 per cent growth in the third quarter of the year, down from 6.9 per cent in the first two quarters.

But analysts have warned of a slowdown ahead as the country tightens financial controls to slow the pace of debt growth and reduces production in the northeast to tackle the country’s notoriously bad air quality.

The Caixin Purchasing Managers Index – an indicator of conditions at small manufacturers – came in at 51.0 in October, unchanged from the previous month.

A PMI figure above 50 represents growth while anything below points to contraction.

“October survey data signalled a further marginal improvement in manufacturing operating conditions across China,” Caixin said in a statement with data compiler IHS Markit.

“But the stringent production curbs imposed by the government to reduce pollution and relatively low inventory levels have added to cost pressures on companies in midstream and downstream industries, which could have a negative impact on production in the coming months,” Caixin analyst Zhong Zhengsheng wrote.

China’s manufacturing sector cools, weaker than market forecasts

While new business and new export sales rose moderately in October, production expansion stagnated and manufacturers continued cutting staff levels, according to Caixin.

Despite increased purchasing activity from companies, input stocks declined as some manufacturers used existing stockpiles to fulfil production requirements, leading to a drop in stocks of finished goods.

The government’s official PMI reading on Tuesday of 51.6 fell short of forecasts, suggesting factory activity expansion slowed in October.

“We tend to put more weight on the Caixin PMI since the index has recently done a better job capturing cyclical trends in economic activity,” Capital Economics China economist Julian Evans-Pritchard said.