Factory output is strong in spite of lower exports

CHINA'S manufacturing activity remained steady in November with a slightly stronger increase in total new work despite reduced amounts of export orders.

The Caixin China General Manufacturing Purchasing Managers’ Index edged up 0.1 points to 50.2 last month from October, according to the survey conducted by financial information service provider Markit for Caixin Media.

A reading above 50 signals growth, while one below 50 is a contraction.

The Caixin PMI reading differed from the dip of 0.2 points to 50 in November from a month earlier for the official PMI released by the National Bureau of Statistics on Friday.

The slight rise in November signaled a further fractional improvement in the health of China’s manufacturing sector, according to Caixin.

The subindex for new orders continued to rise, pointing to improved demand, which may be due to a recent raft of government policies to support the private sector. 

The gauge for new export orders dropped further in November, indicating the impact of  Sino-US trade friction on exports, said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

Data indicated that weaker external demand continued to weigh on overall sales, as export orders declined further midway through the final quarter. New business from abroad has now fallen in each of the past eight months, the report said.

A  combination of relatively subdued sales and stricter environmental policies meant that production levels were unchanged for the second month in a row.

Meanwhile, the employment subindex dipped further into negative territory. The output subindex dropped to the dividing line of 50 that separates expansion from contraction, marking its lowest level since June 2016, which implied production was facing a slowing trend. 

"One key reason for the slowdown may be the obvious increase in stocks of finished goods," Zhong said.

Reflective of the trend for new orders, buying activity rose only slightly in November. As a result, stocks of purchased items expanded marginally, as has been the case in each of the past five months. Weaker than expected client demand also led to the first increase in stocks of finished goods for seven months.

The subindex for suppliers’ delivery times also picked up marginally despite remaining in negative territory, implying capital turnover among goods improved slightly, Zhong said.

Although purchasing costs continued to increase in November, the rate of inflation eased to a seven-month low. At the same time, efforts to stimulate client demand led to a renewed fall in prices charged by manufacturers. That said, the rate of reduction was only fractional.

Business confidence picked up from October’s 11-month low, but remained relatively weak in the context of the series history. While some firms anticipate new products and stronger demand conditions to boost output, a number of companies cited concerns over the impact of strict environmental policies and relatively sluggish market conditions, according to the report.

"Overall, domestic demand across the manufacturing sector improved in November, while overseas demand was still subdued," Zhong said. "Production slowed, confidence was relatively stable, capital turnover was improved, and upward pressure on industrial product prices eased. China’s economy was weak, but did not show significant signs of deterioration."