International | Jun 01 2009
By Rudi Filapek-Vandyck
The headline CLSA China Manufacturing PMI continued its upward trajectory in May, recording 51.2, up from 50.1 in the previous month. Economists at CLSA point out the index is still below the survey’s historical average of 51.7 but there is now enough evidence in place to suggest that operating conditions in the Chinese manufacturing sector have stabilised, and that solid growth momentum may be building.
According to the CLSA survey, Chinese manufacturing production rose for the second straight month in May. The rate of expansion was solid, report CLSA economists, and broadly in line with the series average.
Says CLSA: Production growth marked a distinct turnaround from the rapid declines registered around the turn of the year. Higher output was supported by further gains in new business and an improvement in market conditions. Levels of incoming new work placed with Chinese manufacturers rose for another month in May. Growth of new business was solid, following only a marginal increase in the previous month. Data signalled that domestic demand was the principal driver of expansion, as foreign order levels fell again in May.
External demand, says CLSA, deteriorated to the weakest extent in the current sequence of decline, which now extends to ten months. In May, increased new order intakes and rising production requirements underpinned a further rise in buying activity by Chinese manufacturers. However, the increase in purchasing was insufficient to prevent a further reduction in input inventories. CLSA economists point out the latest decline was the slowest since August last year.
Workforce numbers in the Chinese manufacturing sector were unchanged from the previous month. Those firms that signalled a rise in staffing levels linked this to new business growth. Where a reduction in employment was signalled, some respondents to the survey noted this was due to cost saving initiatives aimed at improving productivity at their plants.
In response to strong competitive pressures, Chinese firms reduced their prices charged for the ninth consecutive month in May. However, the rate of decline eased for the second month running to the slowest for eight months. CLSA mentions there were reports that falling raw material prices had allowed cost reductions to be passed on to clients.
Average cost burdens faced by Chinese manufacturers fell for the eighth month running in May. CLSA points out the latest reduction was the weakest in that sequence. Many respondents mentioned that instability on global commodity markets continued to depress costs, with steel and oil-related products frequently mentioned.