China’s manufacturing sector worsens

  • Business
  • Thursday, 02 Oct 2008

KUALA LUMPUR: Business conditions within the Chinese manufacturing sector deteriorated for a second consecutive month in September, according to the latest survey data from CLSA Asia Pacific Markets.

The headline purchasing managers index (PMI) recorded 47.7, down from 49.2 in August, to record a new survey record low, it said in a report issued on Thursday.

The PMI is a composite index designed to provide a snapshot of overall conditions in the manufacturing economy, with any reading below 50.0 indicating a deterioration compared to the previous month.

September’s survey indicated that Chinese manufacturing output contracted at a robust rate for the second successive month.

“Panellists cited declining volumes of incoming new work as the principal contributor to falling production levels.

“Chinese manufacturers recorded the steepest fall in volumes of incoming new orders in the survey history in September, as sluggish domestic market conditions and depressed global demand hit new sales,” it said.

New export orders were also down for the second month running and at a survey recordrate, with several firms reporting that unfavourable exchange rate developments had exacerbated the adverse effect on exports of the deteriorating global economic climate.

Weaker than expected sales contributed to a first rise in stocks of finished goods since March 2007 and the sharpest rise in inventories in the survey history.

Backlogs of work meanwhile fell for the second successive month, as production capacity generally exceeded workloads.

Chinese manufacturers faced a further increase in their input prices during September. However, input cost inflation fell back to the least marked since February 2006, reflecting declining steel prices and weaker demand for a range of other commodities.

Meanwhile, output prices fell for the first time since March 2006. Much lower inflation of input prices was reported to have contributed to September’s fall in factory gate prices, while manufacturers noted a general deterioration in their pricing power in line with weakening demand.

Staffing levels contracted marginally in September. Declining new order volumes and an uncertain business environment meant that some firms began to lay-off employees, while several companies halted recruitment plans during the month.

Average vendor performance deteriorated further over the month as transport problems persisted, but the rate of lengthening of lead-times moderated to the weakest since September 2007.

Purchasing activity fell further in September, with a number of survey participants suggesting that declining new order volumes had encouraged reduced input buying and greater stock utilisation.

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