The headline CLSA China Manufacturing Purchasing Managers’ Index (PMI) rose sharply to 50.1 in April, from 44.8 in the previous month, to signal an expansion of the Chinese manufacturing sector for the first time in nine months. The upward trend observed in the index since posting a survey low last November, suggests that the sector is showing signs of stabilization.
April data pointed to the first rise in production levels at Chinese manufacturers since last July. Where firms signaled an increase in output at their plants, this was commonly attributed to modest gains in new business.
Growth of new orders was signaled by April’s survey, following eight consecutive months in which order books have deteriorated. Chinese manufacturers widely reported that improved domestic demand had led sales higher in April. Despite an overall gain in new business, Chinese manufacturers pointed to a modest decline in export sales in April. That said, the latest drop in foreign orders was the least marked for eight months, with panelists commenting that improved demand from some external sources had acted to limit the rate of decline.
A modest increase in staff numbers at Chinese manufacturers was recorded in April, which was the first in nine months. Employment growth largely reflected an improvement in order books and higher output requirements.
Prices charged by Chinese manufacturers for their finished goods fell further in April, extending the current period of decline to eight successive months. Anecdotal evidence frequently linked the marked drop in output charges to competitive pressures and falling input costs.
Average cost burdens faced by Chinese manufacturers declined for the seventh month running in April. The latest reduction was still sharp but much weaker than the rapid declines recorded towards the end of 2008.
Commenting on the China Manufacturing PMI survey, Eric Fishwick, head of economic research at CLSA, said: “China’s government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April. The Export Orders Index should soften again in the coming months as, inventories having been brought under control, orders track final demand overseas. However, we hope that firmer domestic demand, as government spending gains traction, will keep the PMI above 50 in months to come.”