International | Aug 01 2007
By Rudi Filapek-Vandyck
It would appear that the slow down for the Chinese economy, as suggested by economists and China watchers last month, is finally becoming reality with CLSA’s monthly manufacturing survey for the country showing just that: a slow down in the making.
CLSA reports its July’s survey data showed that growth of the Chinese manufacturing economy eased at the start of the third quarter of 2007. The headline CLSA China Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snap-shot of manufacturing operating conditions – fell from June’s twenty-seven month high of 55.0 to 53.2.
According to Eric Fishwick, Deputy Chief Economist at CLSA “The drop in export orders suggests that a rush of orders to beat the July cut in export tax rebates was important in accelerating first half growth. But even with the fall back, July’s PMI signals strong activity. This is unsurprising given that, thanks to the rapid pace of reserve growth, monetary policy, even after the latest interest rate increase, remains ultra accommodative.”
CLSA believes the weaker performance of the manufacturing sector in July reflected a moderation in growth of new orders from June’s peak. Although still robust, the latest expansion of new work was the slowest for four months, with lacklustre sales in export markets a significant contributor. New business from abroad rose only modestly in July, with panellists across a number of sectors attributing subdued foreign orders to a change in government tax policy for exporters.
However, CLSA also reports Chinese manufacturers continued to step-up purchasing activity in July, reflecting higher production requirements. The rate of growth of input buying remained robust, albeit down on June’s thirty-seven month high. Nevertheless, stocks of purchases rose only modestly, as vendor lead times continued to lengthen amid supply bottlenecks for many items.
Higher prices for oil, coal and chemicals resulted in a further increase in Chinese manufacturers’ purchase costs during July. However, the overall rate of input price inflation eased substantially on June’s twelve-month high to the weakest since April, with steel prices reported to have moved down from recent peaks.
Output price inflation also slowed in the latest survey period, reaching a six-month low, CLSA reports, adding panellists continued to indicate strong competitive pressures as a factor restricting pricing power.
Reflective of weaker trends in production and new orders, employment growth in the Chinese manufacturing sector eased on June’s series high to the lowest for five months in July. The modest rise in staffing levels was insufficient to prevent a ninth successive monthly increase in backlogs of work, CLSA reports. Growth of outstanding business remained solid, albeit slower than in June, with a number of firms citing the short-supply of certain inputs.
According to the survey, Chinese manufacturers’ warehouse stocks of finished goods declined for a fourth straight month in July. However, the rate of contraction eased to only a negligible rate, as inventory streamlining policies at some firms were offset by weaker-than-expected sales at others.
CLSA’s PMI index fell to 53.2 in July, down from the twenty-seven month high of 55.0 in June.
