ON WATCH

Chinese manufacturing production continued to expand at a robust pace in November,
despite the rate of growth easing since October’s five-and-a-half year peak. At the same time,
companies reported a softer expansion of total new orders, while new export work was
broadly stable after a slight fall in October.

Meanwhile, cost-cutting initiatives underpinned a further fall in staff numbers, though the rate of job shedding was the slowest seen in a year-and-a-half. November also saw a sharp pick up in inflationary pressures, with both input costs and prices charged rising at the fastest rates since early-2011.

At 50.9 in November, the seasonally adjusted Purchasing Managers’ Index™ (PMI™) fell from a 27-month high of 51.2 in October, to signal a marginal improvement in overall operating conditions. Nonetheless, the health of the sector has now strengthened in each of the past three months,
which marks the longest period of improvement since late-2014.

Chinese manufacturers noted a further rise in production volumes during November, stretching the current sequence of expansion to five months. Though solid overall, the rate of output growth softened since October. Companies that raised production generally commented on
greater intakes of new work. However, in line with the trend for output, the rate of new order book expansion weakened since the previous month and was moderate overall.

A number of panellists suggested that stronger domestic demand was behind the latest rise in new
business. Furthermore, new export work was broadly unchanged in November, after a slight decline in the previous survey period.

Firms continued to increase their purchasing activity in November, with the rate of growth edging up to a four-month high. However, the use of inputs in the production process led to a marginal drop in inventories of purchased items for the second month in a row. In contrast, stocks of finished items rose slightly in November, which some firms attributed to increased output.

A lack of stock at suppliers contributed to a further lengthening of delivery times. That said, the rate at which vendor performance deteriorated was only marginal.

November signalled a further decline in Chinese manufacturing employment, as a number of companies sought to reduce their costs. That said, the rate of job shedding was the weakest seen in 18 months. Nonetheless, a combination of lower staff numbers and increased new work led to a further rise in outstanding business.

Inflationary pressures intensified over the month, with Chinese manufacturers signalling the sharpest increase in cost burdens since March 2011 during November. Anecdotal evidence suggested that higher prices for raw materials, particularly for items such as metals, had raised
overall input costs. In order to help protect their margins, firms generally raised their prices charged, and to the greatest extent since February 2011.