Business

Published: Thursday June 21, 2012 MYT 10:31:00 AM

China June factory activity down, exports poor -HSBC Flash PMI


BEIJING: China's factory sector contracted for an eighth straight month in June, with export orders and prices turning in their weakest showing since early 2009, a private-sector survey showed on Thursday.

The HSBC Flash Purchasing Managers Index, the earliest monthly indicator of China's industrial activity, fell to a seven-month low of 48.1 in June from a final reading of 48.4 in May.

It marked the eighth consecutive month that the HSBC PMI has been below 50, indicating contraction.

Both input and output prices dived to their lowest levels in over two years as a sub-index measuring output hit a three-month low.

The new orders sub-index fell in June and the new export orders sub-index dropped even more sharply, to 45.9, its lowest level since March 2009, the data compiled by Markit Economics Research shows.

"With external headwinds remaining strong, exports are likely to decelerate in the coming months," HSBC economist Qu Hongbin said in a note accompanying the survey.

"The sharp fall of prices and moderation of new orders suggest weak domestic demand, posing destocking pressures for Chinese manufacturers."

The relatively shallower fall in overall new orders compared with new export orders could indicate that the domestic economy is not doing as badly as the exports industry.

Still, the PMI survey could disappoint some who hoped that official efforts to support growth were gaining traction.

In May, Beijing signaled its biggest push since joining the World Trade Organisation to boost private investment into areas previously reserved for the state sector, including rail, hospitals, power generation and energy transmission.

It has also fast-tracked some infrastructure projects and since November cut banks' required reserve levels three times.

In its biggest move to bolster growth, China unexpectedly cut interest rates this month. Analysts expect China's growth to slide in April-June for the sixth straight quarter as the euro area debt crisis deepens.

Both the HSBC-sponsored PMI and the Chinese government's official PMI have retreated after briefly flirting with an improved outlook in April.

The government survey includes more state-owned firms in its results, while the HSBC PMI captures more private firms, whose access to credit is more restricted. The two surveys also have different methodologies for seasonal adjustment.

The HSBC Manufacturing PMI index has not been consistently above 50 since June 2011, although it is far above readings of the low-40s reached during the depth of the global financial crisis in late 2008 and early 2009. - REUTERS

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