The HSBC China manufacturing Purchasing Managers' Index (PMI) came at 51.7 in July, down slightly from the earlier flash reading and up from 50.7 in June, and signalled a further improvement in the health of China's manufacturing sector. Furthermore, it was the strongest rate of improvement for a year-and-a-half.
Chinese manufacturers signalled a second consecutive monthly rise in production during July. The rate of output growth accelerated from June to the quickest in 16 months. A number of panellists suggested that production rose in line with greater volumes of new work, which was highlighted by a solid increase in total new business placed at Chinese goods producers. New work from abroad also rose at a faster pace in July, with the latest expansion of new export order books the second-strongest in 44 months.
Purchasing activity increased for the third month running in July. Furthermore, the rate of increase accelerated to the fastest since last October. Anecdotal evidence suggested that input buying rose in line with stronger inflows of new work and subsequent plans to raise productive capacity. As a result, stocks of purchases increased, albeit marginally, following no change in June.
Encouragingly, job shedding at Chinese manufacturing companies eased in July, with the latest fall in workforce numbers the weakest since March. Meanwhile, capacity pressures persisted, as signalled by a second successive monthly increase in backlogs of work. That said, the rate of accumulation was similar to that recorded in June and only slight.
Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC said, "The HSBC China Manufacturing PMI rose to 51.7 in the final reading for July, the highest since early 2013. This is slightly lower than the flash reading released earlier, as several sub-indices saw small downward revisions. Nevertheless, the economy is improving sequentially and registered across-the-board improvement compared to June. Policy makers are continuing with targeted easing in recent weeks and we expect the cumulative impact of these measures to filter through in the next few months and help consolidate the recovery."
