China Manufacturing Sector Shrinks On Weak Demand

China’s manufacturing activity contracted for the first time in three months in April reflecting a renewed drop in new business and employment, survey data released by S&P Global showed on Thursday.

The Caixin manufacturing Purchasing Managers’ Index dropped to 49.5 in April from 50.0 in March. The reading fell below 50.0-mark that separates expansion and contraction.

The score signaled the first contraction in the manufacturing sector in three months.

The official Purchasing Managers’ survey results published by the National Bureau of Statistics earlier this week showed that the manufacturing sector slipped into the contraction territory in April, while non-manufacturing activity remained robust despite a slowdown.

The official factory PMI declined to 49.2 in April from 51.9 in March. At the same time, at 56.4, the non-manufacturing PMI slid from 58.2.

Due to sluggish market conditions and weaker-than-expected customer spending, new orders fell for the first time in three months, S&P Global said. New export work was broadly stable.

At the same time, production growth slowed for a second month in a row. Purchasing activity grew at a softer pace in tandem with output.

Inventories of both pre- and post-production items were little changed. Suppliers’ delivery times improved for a third time in April as vendors were less busy.

Weaker client demand led manufacturers to reduce staffing again and the pace of fall was the fastest in three months. Meanwhile, backlogs of work expanded for the fourth consecutive month.

Manufacturers reported the first decline in average input costs in seven months. They cited lower prices for some raw materials and fuels for the renewed fall in input costs. In turn, firms reduced their selling prices at the fastest pace since December 2015.

Companies were more positive about their 12-month outlook as they expect customer spending to pickup in the months ahead. New product releases, supportive state policies and investment in new equipments would drive growth, the survey showed.

Recent official data suggested that China’s economy rebounded at the start of the year after the lifting of the pandemic-related restrictions. The economy expanded at a faster pace of 4.5 percent in the first quarter after the 2.9 percent growth posted in the fourth quarter of 2022.

The manufacturing PMI in April pointed to the fact that the economic recovery has yet to find a stable footing, Caixin Insight Group Senior Economist Wang Zhe said. Employment is another prominent issue faced by the current economy, especially for young people.

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