Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated a second successive monthly expansion of overall business activity in China during April. That said, the rate of activity growth eased since March to signal only a marginal rate of increase, with the composite index posting 50.8, down from 51.3.
April data indicated that growth of Chinese business activity continued to be led by the service sector, as output broadly stagnated at manufacturers. That said, the rate of services activity growth slowed slightly since March, with the Caixin China General Services Business Activity Index posting 51.8 in April, down from 52.2 in March. Moreover, this indicated that the pace of service sector expansion remained modest overall, and slower than the historical series average.
Despite softer growth in activity, service providers reported a faster rise in new orders in April. Furthermore, the rate of new order growth was the strongest seen in three months, with some firms commenting on improved underlying client demand and new product launches. At the same time, goods producers in China signalled no change to their new order books in April, following a slight increase in the previous month. Overall, new business at the composite level expanded modestly for the second month in a row.
The modest rebound in new order growth led services companies to raise their staff numbers in April. Though the rate of payroll expansion was marginal, it contrasted with a slight reduction in employment in the previous month. Meanwhile, manufacturers continued to reduce their staffing levels at the start of the second quarter. Furthermore, the rate of job shedding was only fractionally slower than February’s post-global financial crisis record. Consequently, composite employment fell further in April, albeit at a softer pace than March’s seven-year peak.
The amount of outstanding business at Chinese service providers increased for the first time in 2016 so far in April, albeit only slightly. Reports from panellists indicated that improved inflows of new work contributed to renewed capacity pressures and higher unfinished workloads. The level of work-in-hand (but not yet completed) also rose marginally across the manufacturing sector in April.
Average input costs continued their upward trend at service providers, with the rate of inflation picking up slightly in April. That said, the rate of increase remained modest overall and much slower than the series average. Goods producers meanwhile reported the fastest rise in cost burdens since the start of 2013, amid reports of higher raw material prices. As a result, composite input costs increased at the quickest pace since February 2013.
Sustained cost inflation contributed to a renewed rise in prices charged by service providers in April. However, the rate of charge inflation was only marginal. Anecdotal evidence suggested that increased competitive pressures across the service sector had restricted overall pricing power. Manufacturing companies meanwhile raised their charges solidly in April. At the composite level, average tariffs rose at the quickest rate since October 2011.
Overall business sentiment remained unchanged from March’s three-month low in April. Anecdotal evidence suggested that some companies expect improving market conditions, are planning operational expansions and are forecasting new projects to boost activity. However, other businesses commented that relatively subdued market conditions could dampen growth.