Chinese manufacturing remained weak last month with small and medium sized enterprises suffering a bigger share of the pain, two surveys indicated yesterday, adding to an uncertain outlook for the world’s No. 2 economy.
The official China Federation of Logistics and Purchasing’s manufacturing index strengthened slightly to 50.3 from June’s 50.1. Separately, the private HSBC purchasing managers’ index (PMI) fell to an 11-month low of 47.7 from 48.2 in June. Both use a 100-point scale, on which numbers below 50 indicate contraction.
The unexpected rebound in the official survey offered a glimmer of hope that China’s slowdown is stabilizing. “But it is still too early to conclude a decisive growth rebound” because the pickup “is still far too modest to suggest a clear upward trend,” Societe Generale China economist Yao Wei (姚煒) said.
The results also reflect how China’s small and medium-sized private enterprises, which analysts say make up a bigger share of HSBC’s survey, are more vulnerable to Beijing’s efforts to tighten up lending, as well as to slumping global export demand for toys, clothing, electronics and other manufactured goods.
China’s big state-owned firms, which take an outsize role in the official survey, have easier access to bank loans and hardly compete in export markets.
China has recorded five straight quarters of growth below 8 percent, a substantial economic cooling for a country that previously grew at double-digit rates. Analysts said the survey results indicate smaller private companies may still be feeling the effects of a credit shortage that began in June, as Chinese regulators try to rein in a lending boom over fears it could race out of control.
“Smaller companies probably have been affected more by the liquidity squeeze,” Yao said.
China’s central bank wants to tighten lending standards, which should reduce risk, but is likely to reduce financing for private businesses that generate China’s new jobs and wealth.
“We shouldn’t dismiss the positive side in the official PMI, but at the same time the HSBC PMI is a reminder that things are still difficult, especially with smaller companies,” she said. “So, basically that suggests as a whole if there is a recovery, it’s a very gradual one and it’s still quite unstable.”
Elsewhere, manufacturing contractions also worsened in South Korea and Australia last month, while ongoing expansions in India and Indonesia weakened.
South Korea’s PMI slumped to 47.2 from 49.4 in June, HSBC said, while in India, the HSBC index weakened to 50.1 from 50.3.
In Indonesia, the PMI dropped to 50.7 from 51.0.
Separately, the Australian Industry Group’s performance of manufacturing index fell to 42.0 last month from 49.7.
“Manufacturers are telling us that, while the fall in the Australian dollar and the May interest rate cut have been extremely welcome, they have not yet been enough to turn around a very challenging business environment, locally and internationally,” Australian Industry Group chief executive Innes Willox said in a statement.