Chinese manufacturing bounced back in June, but the expansion may not last

Getty/Spencer Platt

Manufacturing activity in China staged a small recovery in June, after contracting in May.

The Caixin Manufacturing PMI rose to a 3-month high of 50.4, up from the May reading of 49.6 which was a 1-year low:

The index is based on a survey of private manufacturers in China compiled by data analytics company IHS Market in conjunction with Caixin, a Chinese media outlet.

It differs slightly from the PMI data released by state-run organisation the National Bureau of Statistics (NBS), which has more of a focus on larger state-backed companies.

Like other manufacturing indexes, the Caixin PMI ranges from a score of 0 to 100, with 50 deemed neutral. Anything above 50 indicates that activity levels improved, while a reading below 50 suggests activity levels declined.

While the latest reading showed that the Caixin index moved back into expansionary territory, there’s reason to think that the current conditions may not last.

According to a report from the Caixin Global media outlet, the manufacturers surveyed reported reduced inventory numbers and were more negative about their outlook for the economy.

Caixin reported that sentiment around the 1-year outlook for Chinese manufacturers fell to a 6-month low in June.

The recent gains in iron ore and other commodity prices contributed to the index’s expansion, with those surveyed reporting higher input and output costs.

Despite that, at current prices around $65 a tonne, benchmark 62% fines are still well below prices earlier in the year of more than $US90 a tonne.

Chinese companies continued to lay off more workers than they hired, but did so at a slower rate. However, the Caixin report said that the employment sub-index remains below 50, and has been since 2013.

While the increase in the Caixin index ties in with official state data last week which showed manufacturing PMIs climbing to 51.7 from 51.2, Caixin Global reported that the office PMI data had a much higher reading for total exports.

The Australian dollar was little changed on the news, and has fallen back below US76.8 cents in Asian trade. Shares in Shanghai and Hong Kong’s Hang Seng Index are both trading flat.

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