China's manufacturing operations experience the most significant slowdown in more than six years

The latest survey data in August showed China's manufacturing operations slowed at the sharpest pace in more than six years, with both total new business and new export orders falling faster than in July, leading to the biggest contraction in output since November 2011. Production demand has declined, and companies have reduced purchases accordingly, and the number of purchases has recorded the most significant decline since March 2009. Weak customer demand led to a backlog of finished goods inventories for the first time in six months. At the same time, weaker demand also caused a sharp drop in input costs and output prices during the month. As a comprehensive indicator that summarizes the economic performance of the manufacturing industry with a single value, the Caixin China General Manufacturing Purchasing Managers Index (PMI?) in August (seasonally adjusted) recorded a value of 47.3, slightly higher than the previously released initial value (47.1), but lower than July (47.8), and below the 50.0 threshold for the sixth consecutive month, and this month's manufacturing slowdown is the most significant since March 2009.

Data in August showed that the total number of new business received by China's manufacturing sector contracted for the second consecutive month and recorded the most significant contraction in 17 months. Respondents generally indicated that the deteriorating market conditions during the month led to weaker demand from customers at home and abroad. At the same time, the volume of new export business fell by the most in more than two years. Manufacturers scaled back production in August, with output contracting at the highest rate this month since November 2011, given weaker customer demand. A drop in production demand in August led manufacturers to further curb purchases, with the drop in purchases deepening from July and the most significant since March 2009. As a result, the purchase inventory fell during the month, but the decline was still small. Finished goods inventories, on the other hand, rose slightly in August, with many manufacturers reporting lower sales, resulting in a build-up of finished goods inventories.

In August, China's manufacturing sector shrank employment for 22 consecutive months, with the rate of labor contraction exceeding that of July and close to the 76-month high set in June. The monthly backlog rose for the fourth straight month, but only slightly. In August, the overall input cost of China's manufacturing industry fell further, and many interviewed manufacturers said the reason was related to the decline in raw material costs. Although the decline in input prices has slowed down compared with July, it is still considerable overall. In line with the trend of cost burden, the ex-factory prices of manufactured products also fell in August, and the current round of price reductions has continued for 13 months. The survey shows that the interviewed manufacturers pass on the reduction of input costs to customers by cutting prices, and also to attract new business.

In August, the Caixin China Composite PMI? data (including manufacturing and services) showed a renewed slowdown in China's total economic activity, with the Caixin Composite Output Index falling to 48.8 from 50.2 in July, below the 50.0 threshold , although the contraction rate is still small, it has hit the most significant output contraction rate since February 2009. In August, overall output contracted again, mainly due to the accelerated contraction in manufacturing production, which recorded the largest decline in 45 months during the month. At the same time, the growth rate of business activities in the service industry has slowed down, which also dragged down the composite index. The Caixin China General Services Business Activity Index recorded 51.5 in August, down from 53.8 in July and the lowest growth rate recorded in this 13-month expansion.

Total new orders in the services sector also showed signs of slowing in August, with new business growing at the slowest pace in more than a year this month. The survey shows that recent market conditions have been relatively weak, affecting customer demand. Meanwhile, new orders in the manufacturing sector continued to contract this month, at an intensifying rate that was the most significant in 17 months. Combining the two, total new business declined for the first time since April 2014, albeit slightly. In August, the growth rate of business activities and new orders slowed down, which led to a reduction in the employment growth rate of service industry companies. During the current two-year employment expansion period, the growth rate this month was the weakest, only slightly. Manufacturing employment continued to contract, with the contraction rate slightly intensifying from the previous month. Therefore, the scale of comprehensive employment declined slightly for the third consecutive month.

Backlogs in the services sector fell for the seventh straight month in August, but the overall decline was modest. According to the interviewed companies, the growth rate of new business has slowed down, and companies have been able to clear the backlog of business. The backlog of work in the manufacturing sector rose, but the magnitude of the backlog remained slight overall. Taken together, the overall backlog of work has declined for the fifth consecutive month, but only slightly. In August, price trends in the manufacturing and services sectors continued to be mixed. Input costs for service companies continued to rise slightly, while manufacturing input costs fell markedly. The marked decline in the cost burden of manufacturing also led to a twelfth consecutive month of declines in aggregate input costs, a modest decline. In August, service-sector companies slightly raised their prices for the second consecutive month. In the manufacturing sector, by contrast, ex-factory prices fell by the most since January.