International | Jul 01 2008
By Rudi Filapek-Vandyck
CLSA economist report their monthly survey of Chinese manufacturers has revealed continued growing inflationary pressures in the Chinese manufacturing economy, even as month-on-month growth of output and new orders fell back from recent highs. According to the June survey, output prices rose at the sharpest rate in the fifty-one month survey history, driven higher by rising costs. CLSA notes input price inflation has picked up markedly to a rate broadly in line with March’s series high.
The headline CLSA China Purchasing Managers’ Index, a composite index designed to give a single-figure snap shot of manufacturing operating conditions, fell modestly for the second month running from April’s recent high but, at 53.3, the index remained above the no-change mark of 50.0 and also slightly up on the long-run series average (52.8).
Buoyant demand in the domestic market served to sustain the robust growth of Chinese manufacturing output and new orders, CLSA reports, with some sectors reporting a positive effect from the run-up to the Beijing Olympics. Export orders also rose, with expansion the strongest for five months, but the pace of growth of foreign sales remained well down on that for total orders. Rising raw material costs (which have pushed up selling prices), unfavourable exchange rate movements and weaker global demand were all blamed for subdued growth of exports, the economists report.
Overall growth of production moderated in June. CLSA reports Chinese manufacturers blamed this on a combination of rising input costs, disruption to production caused by May’s earthquake and the effects of government measures to reduce pollution in the run-up to the Olympics. Backlogs of unfinished work rose more strongly as a result (at the fastest rate for twelve months), while stocks of finished goods fell at the sharpest pace in five months.
Manufacturers also reported a further modest reduction in their stocks of purchases, as controls over inventories tightened in response to rapid inflation of input prices. In addition, strong demand for, and shortages of, a wide range of commodities pushed input price inflation close to a survey high in June, with recent oil price spikes also widely blamed.
According to CLSA, almost 63% of all respondents reported a rise in their purchase prices against just 2% recording a fall. Output prices rose strongly in response, with inflation picking up to its highest in over four years. Employment was broadly unchanged in June, as rapid cost inflation made manufacturers more circumspect about taking on additional workers.
