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August 1, 2017

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Manufacturing cools in hot weather

CHINA’S manufacturing activity eased slightly last month amid hot weather and flooding.

The official Purchasing Managers’ Index, which measures vitality in the sector, slowed to 51.4 in July from June’s 51.7, the National Bureau of Statistics said yesterday.

Though slower than the market’s expected 51.6, it remained in expansionary territory for a 12th consecutive month.

A reading above 50 indicates expansion, while a reading below reflects contraction.

Zhao Qinghe, the bureau’s senior statistician, said the July reading had remained between 51 and 52 over the past seven months. The slower expansion was partly due to hot weather nationwide and flooding in some areas, Zhao said.

External demand also weakened, with the sub-index for new export orders falling to 50.9 from 52 in June.

However, input and output prices both rose with companies’ increased purchasing, Zhao said.

Chen Zhongtao, an analyst with the China Logistics Information Center, called the July reading a seasonal fluctuation.

“It’s difficult to avoid volatility at such a relatively high level,” Chen said, noting that the PMI has hovered above 51 for 10 months in a row.

The structural upgrade of the manufacturing sector continued. High-tech and equipment manufacturing led the expansion in July, with their sub-indexes higher than the overall sector’s PMI.

In contrast, the sub-index for oil processing and coking, as well as the non-metal mineral products industry, stayed below 50 for the third month in a row, affected by overcapacity and restructuring.

“The shift between the old and new momentum of growth is accelerating,” Chen said.

The Australia and New Zealand Banking Group attributed the overall weakening to weather conditions, and said the slowdown was temporary.

“Hot weather and flooding in some parts of China temporarily disrupted business activity and dragged the overall index lower,” Betty Wang, ANZ’s senior China economist, said in a note. “The continuous ascent in prices suggests to us a longer industrial recovery. We may see a rebound in upcoming months.”

Despite the slower manufacturing expansion, firms continued to increase purchases with stronger confidence in their future growth, according to Zhao.

The sub-index for the quantity of purchases rose to 52.7 from 52.5 in June, while that for expectations on production and business operations climbed to 59.1 from 58.7, the third consecutive month of increase.

Yesterday’s figures also showed the non-manufacturing PMI moderated to 54.5 from 54.9.

Zhao said a contraction of activity in road transport, real estate and residential services overshadowed faster expansion in postal services, broadcasting and Internet sectors.

“The PMI drop in July was a normal fluctuation and did not show much about the cyclical trend of China’s economy,” CITIC Securities said in a note. “The positive economic outlook remained unchanged.”

For China’s macro-economic policy-makers, the pressure of supporting growth is gradually lessening, according to CITIC Securities.

It predicted no changes to China’s monetary policy stance, which has been set as prudent and neutral for 2017.

Yesterday’s data came after a slew of economic indicators that showed China’s economy steadily stabilizing and improving.

Official statistics put China’s GDP growth at 6.9 percent in the first two quarters of the year, up from 6.8 percent in the fourth quarter of 2016, beating market expectations.


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