The Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that business activity across China continued to expand at a marginal pace at the start of the third quarter. This was highlighted by the Composite Output Index posting 50.9 in July, up slightly from 50.6 in June.
The uptick in the headline index was helped by the stabilisation of manufacturing output following a decline in June. Meanwhile, business activity at services companies expanded at only a modest rate in July. This was shown by the seasonally adjusted Chinese Services Business Activity Index slipping from 52.0 in June to 51.6, which was the lowest index reading for five months.
Composite new orders expanded at a faster, albeit still modest, rate during July. The improvement was largely driven by a further solid increase in new business placed with service providers, despite the rate of expansion edging down from June. Services companies that registered higher new order intakes indicated that this was supported by new products and new clients. At the same time, there was a renewed upturn in new work received by manufacturing companies, albeit fractional.
On the exports front, new work from abroad rose slightly at the composite level for the second time in three months. This was driven by a solid rebound in export sales at services companies. Meanwhile, manufacturing firms registered broadly stable new export business following a marginal reduction in June.
Employment trends across China remained subdued at the start of the third quarter, with composite data showing a marginal reduction in headcounts for the third month running. The fall was centred on the manufacturing sector, which recorded the most marked decline in staffing levels since February. Meanwhile, job creation at services companies remained marginal in July, as softer business activity growth and efforts to contain costs weighed on hiring decisions.
July data pointed to a further marginal rise in unfinished workloads at Chinese companies. The increase was underpinned by a modest increase of backlogs at goods producers. In contrast, service providers registered another marginal drop in outstanding business, with some firms citing greater efforts to complete unfinished projects.
At the composite level, average input prices continued to increase at a modest pace during July. The rate of cost inflation recorded across the manufacturing sector softened since June and was only slight. At the same time, operating expenses at services companies rose at a solid pace, with the rate of inflation strengthening slightly since the previous month. Firms commonly linked higher costs to greater prices for materials, fuel and staff.
Composite data indicated that prices charged by Chinese businesses fell for the first time in six months in July, albeit only fractionally. The decline was driven by a renewed fall in factory gate charges. Though modest, it was the first time manufacturers had cut their prices since January. Services companies raised their charges only slightly in July, with some firms indicating that competitive pressures had restricted pricing power.
Business confidence regarding future output picked up in July, with the overall level of positive sentiment improving to a three-month high. Stronger optimism was seen across the manufacturing sector, having recovered from June’s record low. Services companies remained more upbeat overall, however, despite the degree of positive sentiment being unchanged from June.
Building empty apartments like a madman and still struggling.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.