China’s manufacturing engine loses further momentum

Latest PMI shows output, employment and new orders all declining at faster pace

Wed, Jul 24, 2013, 07:44

China’s manufacturing engine lost further momentum in July and the job market weakened, a survey showed today, complicating a transition to consumer-driven growth and boding ill for so many leveraged to the world’s second-largest economy.

The knock-on effects are already being felt more and more widely - from a slowdown in Japanese export growth despite a weaker yen, to Apple lamenting a rare drop in Chinese demand for its premium brand of gadgets.

“China’s slowdown is starting to become more dangerous,” warned Yasuo Yamamoto, a senior economist at Mizuho Research Institute in Tokyo.

Since taking office in March, China’s new leaders have said they are prepared to tolerate tamer growth and push a restructuring of the economy toward domestic consumption, but there have been mixed messages on how much of a slowing they would tolerate.

The flow of data suggests their task of changing the shape of the massive economy will only get harder. Today’s flash HSBC/Markit Purchasing Managers’ Index showed output, employment and new orders all declining at a faster pace in July.

The overall index of business conditions fell to 47.7 from June’s final reading of 48.2, a third straight month below the watershed 50 line which divides expansion from contraction and the weakest level since August 2012.

The employment sub-index slid to 47.3 in July, the weakest since the depths of the global financial crisis in early 2009. “This print could reignite fears of a Chinese hard landing,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. “We expect economic growth to continue moderating towards 7 percent.”

China’s economy grew 7.5 per cent in April-June from a year earlier, the ninth quarter of slowdown in the past 10 quarters.

While top leaders have stressed in recent weeks that reform is the priority, the latest being President Xi Jinping, they were also at pains to assure investors that Beijing would not allow the economy to slip too far.

Today the industry ministry said it was putting a priority on restructuring and reforming traditional industries such as steel, shipbuilding, cement and aluminium, once drivers of growth but now plagued with overcapacity.