Chinese SMEs are struggling

Activity across small and medium-sized Chinese manufacturing firms deteriorated at the fastest pace since March 2009 according to the latest Caixin manufacturing PMI report released by Markit.

In September the index fell to 47.2 from 47.3 in August. Despite the continued deterioration, the figure was an improvement on the 47.0 flash reading released in late September that incorporates around 85-90% of total survey responses.

“A key factor weighing on the headline index was a sharper contraction of manufacturing output in September,” said Markit.

“According to panelists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September.

“Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.”

Fitting with that unsettling picture on the sector, Markit note that firms cut staff numbers at the fastest pace in 80 months. With less staff manning the production lines, order backlogs grew modestly.

Elsewhere total new orders contracted at a sharper rate amid a steeper downturn in new export business, while at the same time inventories of finished goods rose, indicating that demand is soft.

In what will no doubt raise questions over China’s economic transitions from an industrial to services economy, there was also worrying news on activity across the nation’s services sector.

The separate Caixin services PMI gauge dipped to 50.5 in September from 51.5, falling to the lowest level in 14-months.

Earlier in the session China’s government released separate manufacturing and services PMI reports for September, with both exceeding those figures in the Caixin-Markit series.

While both the government and Markit use diffusion indices, with 50 being the levels that separates expansion from contraction, there are two key differences between the two data series. The government PMI survey is larger than that conducted by Markit. It also encompasses responses from larger forms, whereas Markit’s survey is based around responses from small to medium-sized firms.

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