Caixin China Composite PMI™ data (which covers both manufacturing and services) pointed to a stabilisation of Chinese business activity in January, following a slight reduction at the end of 2015. This was signalled by the headline Caixin Composite Output Index registering fractionally above the no-change 50.0 value at 50.1, up from 49.4 in December.
Chinese service providers had a strong start to 2016, with business activity increasing at the fastest rate in six months. This was highlighted by the headline Caixin China General Services Business Activity Index posting up from December’s 17-month low of 50.2 at 52.4 in January. According to panellists, improved inflows of new business underpinned the latest expansion of services activity. Meanwhile, the downturn in the manufacturing sector extended into 2016, with production declining for the second month in a row.
In line with the trend for activity, new orders rose at service sector firms, but declined again at manufacturers. Moreover, the rate of service sector new business growth accelerated to a solid pace that was the strongest in three months. A number of respondents mentioned that new product launches and stronger underlying customer demand had helped to lift sales. As a result, composite new business rose slightly in January, after a two-month sequence of reduction.
Divergent employment trends were seen at the sector level, with staff numbers rising at services companies and falling at manufacturing firms during January. Furthermore, the pace of job creation at service providers quickened to a six-month high, with some firms commenting on planned company expansions. However, service sector employment growth did not offset job shedding at goods producers, and consequently staff numbers fell for the eighth successive month at the composite level, albeit only slightly.
After broadly stabilising in December, the level of outstanding business at service providers declined marginally in January. Conversely, backlogs of work increased for the ninth consecutive month at manufacturers. That said, the rate of accumulation was the slowest seen since May 2015. At the composite level, the level of work-in-hand (but not yet completed) fell for the first time in four months (though at a marginal rate).
Services companies and manufacturers both reduced their prices charged in January. The rate of discounting was marginal across the service sector, while goods producers cut their prices at a moderate pace. Average cost burdens meanwhile increased at service providers, though the rate of input price inflation eased to its lowest level in four months. Softer growth of service sector input prices, combined with a solid reduction in manufacturers’ costs, led to a further fall in input prices at the composite level.
Service providers were generally optimistic towards the one-year business outlook in January. Although the overall degree of positive sentiment improved to the strongest since July 2015, it remained much weaker than the series long-run average.