China's manufacturing sector slid into contraction in December, the latest survey from HSBC revealed on Wednesday – posting a revised PMI score of 49.6.
That was up from the preliminary reading of 49.5 earlier this month, although it was down from 50.0 in November. It also moved below the boom-or-bust line of 50 that separates expansion from contraction for the first time since May.
Chinese manufacturers signalled a renewed deterioration in operating conditions at the end of 2014, with both output and new orders falling slightly on the month. In contrast, new export business continued to increase in December, and at a slightly quicker rate than in November. In response to lower total new orders, firms cut their workforce numbers again in December, albeit only slightly. On the prices front, both input prices and output charges fell at the sharpest rates in nine months.
«As seen in the flash reading earlier, domestic demand led the slowdown as new orders contracted for the first time since April 2014. Price contraction deepened,» said Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC.
The weaker PMI reading was partly a result of a renewed fall in new business volumes placed at Chinese manufacturers in December. Though only slight, it was the first reduction in new orders since April. Data suggested that the decline was largely driven by softer domestic demand, as new export work rose for the eighth month in a row and at a slightly quicker rate than in November.
As a result of lower overall new business, manufacturers cut production for the second successive month in December. That said, the rate of reduction was weaker than in November and only fractional, the bank said.
Manufacturing employment in China declined again in December, thereby extending the current sequence of job shedding to 14 months. However, the rate of reduction eased to the weakest in five months. Lower staff numbers contributed to an increased amount of work-in-hand (but not yet completed) in December.
Furthermore, the rate of accumulation quickened to a solid pace that was the strongest since March 2011. Lower production requirements led to the first reduction in buying activity since April, albeit only slight. Stocks of purchases meanwhile fell for the fifth straight month, with a number of companies mentioning stocks had fallen in line with softer client demand.
Average input costs faced by Chinese goods producers fell for the fifth month in a row during December. Moreover, the rate of reduction accelerated to the sharpest since March.
«Today's data confirmed the further slowdown in the manufacturing sector towards year end. We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months,» Hongbin said.
The material has been provided by InstaForex Company – www.instaforex.com