China's manufacturing industry enjoyed a sharp improvement in trading conditions during October, with the latest HSBC Purchasing Managers' Index™ coming in at 49.5 – up from 47.9 the previous month.
The upward swing was in part thanks to a rise in new orders – the first increase for a year. Almost one in five of the firms surveyed for the PMI ™ reported a rise. However, the index remains below the key 50 mark, which indicates the difference between a contracting industry and one expanding.
While October's figure of 49.5 suggests the rate of contraction has slowed, it still represents the 12th month in a row in which the industry has shrunk. Employment and output levels were among the business areas which remained below 50 in October.
The latest survey also reveals a dramatic swing in input prices – the index shifting from 43.4 to 53.1. After experiencing months of deflation, Chinese companies are facing a return to higher raw material costs.
China’s manufacturing industry continues to shrink
Qu Hongbin, HSBC's Chief Economist for Greater China, believes the latest figures show China's industrial activity "continues to bottom out". But he fears the outlook for exports remains challenging.
"We expect a continuation of policy easing to further boost domestic demand and counterbalance the external weakness, leading to a gradual growth recovery in the coming quarters," Mr Hongbin says.
The PMI™ is compiled using the views of senior purchasing executives in more than 420 companies who comment on 11 areas of their business. It's seen as a key indicator to the health of the manufacturing industry in the world's biggest exporter.
The next pointer to China's industrial strength will come from November's Flash PMI™ due for release on the 22nd of this month.
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