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03 Sep 2012

Chinese exporters buffeted while India stays calm

A worker inspects metal components at a factory in  Zhejiang province, China.

Chinese manufacturers are facing increasingly tough times due to weak global demand

Sluggish economic growth in many parts of the world continues to make life difficult for Chinese manufacturers, according to HSBC's latest Purchasing Managers' Index (PMITM) which suggests operating conditions in the industry are at their toughest in over three years.

August's PMI reading of 47.6 is the lowest since March 2009, and signalled a sharp deterioration since the previous month's 49.3. The figure has dampened hopes that China's industry may soon return to a figure above the 50 mark – indicating expansion rather than contraction.

The index is compiled using the views of senior purchasing executives in over 420 companies across the country and is seen as a significant indicator to the health of China's manufacturing industry.

HSBC's Chief Economist for Greater China, Qu Hongbin, suggests producers are "facing increasing difficulties amid stronger global headwinds."

"Beijing must step up policy easing to stabilise growth and foster job market conditions," he adds.

A breakdown of the components that make up the PMI reveals output by Chinese manufacturers, which had expanded in July, reversed that trend and contracted. Those companies reporting a drop in output blamed lower levels of new business.

For the sixth month in a row staff numbers in the industry declined while the stocks of finished goods has continued to expand since May – that reading is now at its highest level since the data was first compiled in April 2004.

India's latest manufacturing figures make more pleasant reading, with the PMI coming in at 52.8 – broadly unchanged on July's 52.9 – despite the major power failures that hit large parts of the country in early August.

Employment remains a particular bright spot for the industry with the workforce expanding at the fastest pace since the data was first collected in April 2005. Output also increased, but some components of the index showed declines.

Weakening international demand was blamed for a fall in new export orders, while companies reported a rise in their stocks of finished goods.

Leif Eskesen, HSBC's Chief Economist for India, suggests the industry didn't escape the power failures unhurt.

Momentum in the manufacturing sector eased on the back of weak external demand and output disruptions caused by the major power failures. The power failures also partly contributed to a rise in backlogs of work as manufacturing companies struggled to finish orders on time.

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