Chinese operating conditions showed only a fractional improvement in September that was identical to that seen in August. Production increased at the slowest pace in the current four-month sequence of expansion, while job shedding across the sector extended into an eleventh successive month.
Meanwhile, a slightly stronger expansion of total new business, largely driven by the strongest rise in new export work for four-and-a-half years, led to the quickest accumulation of backlogged work in 2014 so far.
The HSBC China manufacturing Purchasing Managers' Index (PMI) came at 50.2 in September, down slightly from the earlier flash reading of 50.5, and unchanged from August's three-month low. This signalled only a fractional improvement in the health of the sector.
Chinese manufacturers saw a further expansion of output in September, though the rate of increase eased further from July's 16-month high and was the slowest in four months of expansion. Panellists generally attributed growth to higher volumes of new work, as highlighted by a modest increase in total new business. Data suggested that inflows of new work were largely driven by stronger demand from abroad, with new export orders rising at the fastest pace since March 2010. Panellists commented that improving economic conditions across a number of key export markets helped to boost new export business.
Despite higher volumes of new work, companies continued to cut their staffing levels in September at a modest pace. Lower workforce numbers were generally attributed to a combination of down-sizing policies and the non-replacement of voluntary leavers. Consequently, capacity pressures persisted across the sector, with volumes of outstanding business rising for the fourth successive month. Though only moderate, it was the quickest rate of backlog accumulation in 2014 so far.
Purchasing activity in China's manufacturing sector rose for the fifth month in a row during September, albeit at the slowest rate since June. Manufacturers in China saw a second successive monthly fall in average cost burdens in September. The rate at which input prices fell was the quickest since April. Output prices also declined in September, with a number of companies discounting their selling prices in an attempt to boost new business.
Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC said, "The HSBC China Manufacturing PMI was revised down slightly to 50.2 in the final reading for September from the flash reading of 50.5, and unchanged from the August reading. Output and new orders were both revised down. Meanwhile, the employment and price sub-indices were revised up, although both remain at relatively low levels. The new export orders sub-index rose to its highest reading since March 2010. Overall, the data in September suggest that manufacturing activity continues to expand at a slow pace. We think risks to growth are still on the downside and warrant more accommodative monetary as well as fiscal policies."