Operating conditions faced by Chinese goods producers continued to deteriorate in February. Output and total new orders both declined at slightly faster rates than at the start of 2016, which in turn contributed to the quickest reduction in staffing levels since January 2009. Lower production was a key factor leading to the steepest fall in stocks of finished goods in nearly four-and-a-half years during February. At the same time, lower intakes of new work enabled firms to marginally reduce their level of work-in-hand for the first time in ten months. Prices data indicated weaker deflationary pressures, with both selling prices and input costs
declining at modest rates.
The seasonally adjusted Purchasing Managers’ Index™ (PMI™) posted at 48.0 in February, down from 48.4 at the start of the year, and its lowest reading for five months. Operating conditions have now worsened in each month for the past year. That said, the rate of deterioration remained modest overall.
Manufacturing companies in China signalled a further fall in production during February. Though modest overall, the latest reduction was the quickest seen since September 2015. Companies that reported lower output generally cited weak market conditions and reduced intakes of new work. Furthermore, total new business declined for the eighth month in a row, albeit at a modest pace that was similar to January. New export work fell for the third month in a row, albeit at a softer pace.
Staff numbers declined at the sharpest rate since January 2009 during February. Companies that recorded lower headcounts widely commented on company downsizing policies as part of cost-cutting initiatives, along with the non-replacement of voluntary leavers. Despite lower employment, manufacturers were able to work through outstanding business during February. Though marginal, it was the first reduction in the level of work-in-hand since April 2015.
Lower production requirements led Chinese manufacturers to cut their purchasing activity again in February. The rate of reduction was modest overall, despite quickening since the start of the year. Consequently, stocks of inputs declined further, though the rate of depletion was similar to that seen throughout the current eight-month sequence and moderate. Stocks of finished goods also declined in February and at the quickest rate since September 2011. According to panellists, lower output and the delivery of goods to clients had reduced inventory holdings.
Prices charged by Chinese manufacturing firms continued to decline in February. That said, the rate of discounting was the slowest seen in nine months. A number of respondents mentioned cutting their tariffs due to increased competition for new work and to pass on lower input costs to clients. The rate of input cost deflation also slowed in February to the weakest for 18 months.
China’s official manufacturing purchasing managers’ index fell to 49 in February from 49.8 in January, equalling its weakest since February 2009 and the seventh straight month of decline. The National Bureau of Statistics, which released the measure, said this was partly due to seasonal effects of the lunar new year holiday, when many factories shut down for extended periods to allow workers to travel to distant hometowns to spend time with their families.
“While the Chinese new year may have distorted the [manufacturing] PMI figures in January and February, the average level of the two months still remained at 49.2, below the benchmark level,” said Raymond Yeung and Louis Lam of ANZ Research. “Today’s data suggest that policymakers will take further measures in the upcoming National People’s Congress starting on 5 March in order to achieve a GDP growth target of 6.5-7 per cent in 2016”.
The official services sector PMI, which had previously held up better than the manufacturing index in China’s economic slowdown, also slipped last month to 52.7, its weakest level since December 2008. (…)