China’s manufacturing deterioration shows outlook ‘bumpy’, analyst says

Workers at a clothing factory

Chinese manufacturing has deteriorated more sharply than expected, after both official and unofficial readings of activity show ongoing contraction.

The Purchasing Managers’ Index (PMI) released by China’s National Bureau of Statistics reported a fall from 49.4 to 49, well below market expectations.

It was also the seventh consecutive month it has come in below the benchmark level of 50.

A number below 50 indicates contracting activity.

The “unofficial” but respected Caixin PMI also disappointed easing from 48.4 to 48.

Caixin chief economist He Fan said the index readings for all key categories including output, new orders and employment signalled conditions had worsened.

“[This is] in line with signs that the economy’s road to stability remains bumpy,” Dr Fan said.

The decline in output and new orders accelerated since last month, contributing to the sharpest reduction in staffing levels since the global financial crisis struck China in 2009.

Operating conditions have now worsened in each month for the past year.

“Prices data indicated weaker deflationary pressures, with both selling prices and input costs declining at modest rates,” Dr Fan said.

“Companies that reported lower output generally cited weak market conditions and reduced intakes of new work.”

Total new business declined for the eighth consecutive month.

Demand for Chinese manufacturing ‘soft’

ANZ economist Raymond Yeung said despite a slight uptick in new export orders, both domestic and external demands were soft as they remained in contraction territories.

“Industrial production is likely to remain weak in the first quarter of 2016, and growth could further trend down, especially for overcapacity sectors such as steel, cement and coal,” Mr Yeung said.

“Today’s data suggests policymakers will take further measures in the upcoming National People’s Congress [starting on Saturday], in order to achieve a GDP growth target of 6.5 to 7 per cent in 2016.”

Capital Economics’ Julian Evans-Pritchard said the PMIs suggested the economy lost some momentum last month, though Chinese New Year disruptions are probably partly to blame.

“The breakdown of the PMIs suggests softer domestic demand is to blame,” he said.

“The new export components of both indices actually rose last month even as total new orders fell.”

The weaker than expected data pushed the Australian dollar lower against the US dollar in this morning’s trade.

[Source:- Newsau]