Manufacturing broadly stable, says Caixin

Chinese manufacturing activity remained broadly stable in July, rebounding from a month earlier with an increase in overall new orders, according to Caixin's latest report released on Thursday.

The Caixin China General Manufacturing Purchasing Managers’ Index, which is weighted toward private companies, edged up to 49.9 last month from 49.4 in June, Caixin magazine and research firm Markit said.

A reading above 50 signals growth while below 50 is contraction.

The Caixin PMI offers a first glimpse into the operating environment and is closely watched as an alternative to the official PMI.

The official manufacturing PMI released on Wednesday edged up slightly to 49.7 in July from 49.4 in the previous month.

The headline Caixin PMI figure posted only fractionally below the neutral 50 level, signaling broadly stable conditions across China’s manufacturing sector, according to the report.

Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, pointed out that the sub-indexes for new orders and output both returned to expansionary territory, and the gauge for new export orders rose slightly, though it remained in contractionary territory. 

"This indicates that domestic demand recovered, and overseas demand was stable," Zhong said.

Output grew steadily in July following a marginal drop in June. Some firms said relatively firmer demand conditions had led them to leave production volumes unchanged, according to the report.

Meanwhile, total new orders rose at a fractional pace after a modest decline at the end of the second quarter. The upturn was likely driven by stronger domestic demand, as new export orders were little changed in July, according to the report, while some companies said the ongoing trade dispute with the US continued to weigh on export sales.

Subdued demand conditions nonetheless prompted firms to lower their workforce numbers for the fourth month in a row, and at the quickest pace since February.

The lack of personnel then became a key reason for a further increase in unfinished work. That said, the rate of backlog accumulation remained modest, the report said.

While the sub-index for stocks of purchased items fell into contractionary territory, the measure for stocks of finished goods dropped further into decline, reflecting that increased orders consumed inventories to some extent, Zhong said.

Chinese manufacturers indicated that average input costs rose again in July, though the rate of increase was marginal. At the same time, efforts to stimulate customer demand and boost new order intakes led firms to cut their selling prices for the first time since January.

After slipping to its lowest on record in June, business confidence regarding output for the year ahead improved to a three-month high in July, the report showed.

"China’s manufacturing economy showed signs of recovery in July. Business confidence rebounded, reflecting the strong resilience in the economy and that the policies such as tax and fee reductions designed to underpin the economy had an effect," Zhong said.

The situation may strengthen policymakers’ insistence to regulate the property market and the finance industry, he said.

However, concerns over the outcome of ongoing trade negotiations with the US continued to weigh on overall sentiment.