Manufacturing cools in June

Caixin's latest PMI fell to 49.4 last month from 50.2 with trade tensions causing renewed declines in total sales, export orders and production.

Chinese manufacturing activity cooled in June with trade tensions causing renewed declines in total sales, export orders and production, according to Caixin's latest report released on Monday.

The Caixin China General Manufacturing Purchasing Managers’ Index, which measures the manufacturing sector and is weighted toward private companies, fell to 49.4 last month from 50.2 in May, Caixin magazine and research firm Markit said.

A reading above 50 signals growth while one below 50 means contraction.

The Caixin PMI is a private survey focusing on smaller businesses and offers a first glimpse into the operating environment. It is closely watched as an alternative to the official PMI.

The official PMI released on Sunday remained unchanged at 49.4 in June as the previous month.

The headline PMI figure was below the critical 50 threshold for the first time in four months and the second lowest since June 2016, indicating a clear contraction in the manufacturing sector, said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

Amid reports of trade tensions, total new business and international sales declined at the end of the second quarter.

"The sub-index for new orders slid into contractionary territory, pointing to notably shrinking domestic demand," Zhong said.

"The gauge for new export orders also returned to contractionary territory, but was better than the levels seen from last April to last December. Front-loading by exporters was likely to support this gauge as the China-US trade relationship was under great uncertainty."

Goods producers lowered output in June, thereby ending a four-month sequence of expansion, according to the report. That said, the pace of contraction was only slight. Sub-sector data indicated that consumer goods bucked the trend and was the only category to record production growth in June.

As has been the case since April, Chinese manufacturers shed jobs in June. The pace of contraction was broadly similar to that seen in the remainder of the second quarter. Anecdotal evidence suggested that voluntary leavers had not been replaced. 

Ongoing job shedding added pressure on the capacity of manufacturers’ operations, with outstanding business up again in June. The rate of backlog accumulation was slight, however, and broadly similar to that seen earlier in the second quarter. 

Meanwhile, the gauges for input costs and output prices both edged up into expansionary territory. Prices of industrial products remained stable due to supply-side structural reform, Zhong said.

Overall sentiment toward the 12-month outlook for production among Chinese manufacturers was broadly neutral in June. Some companies expected the launch of new products and expansion plans to boost output in the year ahead, while others were concerned about US-China trade tensions, according to the report.

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