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Financial News: China's Factory Activity Expands At Steady Pace

China's Factory Activity Expands At Steady Pace

11/01/2017 - 02:31:00 (RTTNews)

(RTTNews) - China's manufacturing activity expanded at a steady pace in October amid acceleration in new orders and slowdown in production growth, a private survey showed Wednesday.

Further, firms reduced staffing to improve efficiency and production curbs introduced by the government to reduce pollution added to cost pressures.

The Caixin manufacturing Purchasing Managers' Index remained unchanged at 51.0 in October, survey data published by IHS Markit revealed.

Operating conditions have strengthened in each of the past five months. A score above 50 indicates expansion in the sector.

However, the official Purchasing Managers' survey showed that the manufacturing sector growth softened in October largely due to weak new orders. The factory PMI fell to 51.6 from 52.4 a month ago.

The stringent production curbs imposed by the government to reduce pollution and relatively low inventory levels have added to cost pressures, which could have a negative impact on production in the coming months, Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group, said today.

Looking ahead, Julian Evans-Pritchard, an economist at Capital Economics, said growth momentum is likely to weaken in the coming months as the drags from slower credit growth, reduced fiscal support post-Party Congress and the environmental crackdown all intensify.

According to the private survey, companies reported a further increase in new business and the pace of expansion picked up since September. In contrast, production grew at the softest rate for four months.

At the same time, confidence towards the 12-month outlook for production moderated to its second-lowest level since August 2016.

Manufacturing employment declined again in October amid reports of company-downsizing policies and efforts to raise efficiency.

Data showed that firms reduced staffing levels and higher new orders led to a further increase in backlogs of work. The rate of accumulation was the joint-steepest since March 2011.

Stringent environmental inspection policies and low stock levels among suppliers contributed to a further deterioration in delivery times. These factors contributed to a further sharp increase in average purchasing costs.

The rate of input price inflation edged down only slightly since September and was among the highest seen since early-2011. In order to protect their margins, firms raised their selling prices again in October but the rate of increase was not as steep as seen in the previous month.

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