Smaller Chinese manufacturers are getting crushed

Photo: Alexey Kravtsov/AFP/Getty Images

Activity levels across smaller Chinese manufacturing firms have now contracted for 16 consecutive months.

The Caixin-Markit manufacturing purchasing managers’ index (PMI) printed at 48.6 in June, missing expectations for a smaller decline to 49.1.

It was also well below the 49.2 level of May, and marked the steepest contraction in activity levels seen since February.

The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

“Chinese manufacturers reported the sharpest deterioration in operating conditions for four months in June, with output falling at the quickest rate since February amid a further drop in new work,” said Markit.

“Consequently, companies continued to pare back their staff numbers at a solid pace, while trimming their inventory holdings of inputs and finished goods further.

“Prices data indicated a renewed fall in cost burdens faced by Chinese goods producers, while output charges were left broadly unchanged after a three-month sequence of inflation,” it added.

So basically everything is weak. Hardly stellar news, and one that underlines the need for Chinese policymakers to push ahead with reforms to the nation’s industrial sector.

The weakness in the Caixin-Markit survey mirrored that seen in the official manufacturing PMI survey for June released by the government earlier in the session.

The former is a smaller survey that gauges activity levels for small and medium sized manufacturing firms from China’s private sector. This distinguishes it from the government survey which measures activity levels for both public and private sector firms, regardless of their size.

In the government report, PMI’s for medium and small firms came in at 49.1 and 47.4 respectively, similar to the levels reported by Markit.

In overall terms, the official PMI came in at 50, suggesting activity levels neither improved nor deteriorated in June.

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