Chinese manufacturers finally see improvement, but risks remain: HSBC

HONG KONG - Chinese manufacturers signalled the first improvement in overall operating conditions for six months in June, with output rising for the first time since January, and at a moderate pace. Growth was supported by the strongest expansion of total new work since March 2013, while new export orders rose for the second month running.

Increased volumes of new business led to the quickest depletion of stocks of finished goods for nearly three years, while job shedding was the weakest in three months. After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index came in at 50.7 in June, up from 49.4 in May, signalling the first improvement in business conditions since December. That said, HSBC pointed out, the rate of improvement was only slight and weaker than the historical average.

The improvement in the health of the sector partly reflected the first expansion of total new business placed at Chinese manufacturers for five months during June - the strongest rate of new order growth in 15 months. Reports from panellists suggested that improving market conditions boosted sales. New export business also rose in June, albeit at a marginal pace.

 Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said the June figures confirmed a trend of stronger demand and faster de-stocking. ”The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments,” he said.

“However there are still downside risks from a slowdown in the property market, which will continue to put pressure on growth in the second half of the year. We expect both fiscal and monetary policy to remain accommodative until the recovery is sustained.”