Domestic demand subdued as Chinese manufacturing growth slows

Billy Ehrenberg
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It's an underwhelming morning for the Chinese economy (Source: Getty)
It's an underwhelming morning for the Chinese economy.
Official purchasing managers' index (PMI) figures for the manufacturing sector missed expectations by 0.1 points in August, while HSBC and Markit Economics's measure was revised down by a similar amount.
Asian markets remained largely unaffected by the news, with Shanghai Composite, the Nikkei and the Hang Seng up by 0.5, 0.3 and 0.2 per cent respectively.
According to the China Federation of Logistics and Purchasing, the official reading for August was 51.1, down from 51.7 in July. Analysts surveyed by Bloomberg were expecting 51.2. Any score above 50 indicates growth, but these are underwhelming numbers.
Official readings are weighted towards larger businesses, which are more likely to benefit from government stimulus measures. HSBC's survey is weighted towards small businesses.
The bank's numbers hardly improved matters: HSBC/Markit Economics gave a reading of 50.2, down from 51.7 last month. This is the slowest rate of growth for three months, and, according to Hongbin Qu, economist at HSBC, subdued domestic demand played a hand.
From the report:
The HSBC China Manufacturing PMI eased slightly to 50.2 in the final reading for August from the flash reading of 50.3. The revisions were mixed, with upward revision to the new export orders and output sub-indices but downward revisions to the employment and input prices indices.
Although external demand showed improvement, domestic demand looked more subdued. Overall, the manufacturing sector still expanded in August, but at a slower pace compared to previous months. We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery.
HSBC's report pointed to other causes too; namely slower expansion in output and total new business during August. As has been the case for the past 10 months, the sector continued to shed jobs, with jobs falling in August at their fastest rate in the last three months as many companies try to cut costs.

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