'GRIM': Demand for Chinese manufactured goods just took a turn for the worse

Getty Images
  • Activity levels across China’s manufacturing sector in July grew at the slowest pace in eight months.
  • New export orders declined for a fourth consecutive month, and at the fastest pace in over two years.
  • One analyst described China’s export market as “grim”.

A slowdown in the global economy and increased trade tensions with the United States is clearly taking its toll on China’s manufacturing sector.

It grew at the slowest pace since November last month, undermined by the steepest drop in new export orders in over two years.

The IHS Markit China Manufacturing Purchasing Managers Index (PMI), produced in conjunction with the Caixin Insight Group, fell to 50.8 in July in seasonally adjusted terms, down from 51.0 in June.

This indicator measures perceived changes in activity levels across China’s manufacturing sector from one month to the next.

Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

So activity levels barely improved last month, echoing the same view reported in China’s official PMI released by the government on Tuesday.

IHS Markit

IHS Markit said output slowed and order backlogs fell, driven by a sharp deterioration in demand from abroad.

“New order growth weakened for the second month running and was slower than the historical series trend,” the group said.

“Data suggested that reduced external demand contributed to the slowdown, as exports fell for the fourth month in a row.

“Notably, the rate at which new export business declined was the quickest recorded for just over two years amid reports of subdued market conditions.”

Reflective of the slowdown in new work, firms continued to shed staff, albeit at a slower pace than June.

Zhengsheng Zhong, Director of Macroeconomic Analysis at Caixin Insight Group, said the July survey signaled a “weakening manufacturing trend as a grim export market dragged on the sector’s performance”.

As opposed to the official China manufacturing PMI released by the government, the IHS survey tends to focus on small and medium-sized manufacturing firms from the private sector.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.