There's a glimmer of hope for China's smallest manufacturers

Photo by Scott Barbour/Getty Images

For the first time since February last year, activity levels for small and medium-sized Chinese manufacturers are improving.

According to the latest Caixin-Markit China manufacturing purchasing managers’ index (PMI), a survey that tracks activity levels for smaller Chinese manufacturers in the nation’s private sector, activity levels improved modestly in July, marking the first time in 17 months such an outcome has occurred.

The PMI rose to 50.6, well above the 48.6 level of June and forecasts for an increase to 48.7. It was also the largest monthly gain for the index since August 2013.

According to Markit, the data signalled a renewed upturn in operating conditions faced by Chinese manufacturers with output, new orders and buying activity all returning to growth.

The order backlogs subindex, in particular, was a standout performer with the gauge rising at the fastest pace since March 2011.

“Respondents commented that new products and improved marketing strategies had boosted new business,” said Markit. “Data indicated that growth in new work was largely due to stronger domestic demand, however, as export sales declined marginally at the start of the third quarter.”

Despite the surge in new business, employers continued to trim staff numbers, although at a slower pace.

“Job shedding was largely driven by efforts to reduce costs and raise productivity,” noted Markit.

The strength in the Markit survey — seemingly out of nowhere — is at odds to the performance communicated in the separate manufacturing PMI survey released by China’s National Bureau of Statistics (NBS) earlier in the session.

It reported that activity levels across China’s manufacturing sector contracted marginally in July, led by steep declines for small and medium-sized manufacturers.

The NBS survey differs from the Caixin-Markit report as it tracks changes in activity levels across all manufacturers — be they small, mid-sized or large — from both the public and private sectors.

It is also larger in scale than the Caixin-Markit survey.

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