Survey shows China manufacturing shrinks in June as demand weakens

HONG KONG – Manufacturing in China contracted this month at a faster pace as demand weakened, according to a private survey Thursday, adding to fears about a fragile recovery in the world’s second-biggest economy.

HSBC said that the preliminary version of its monthly purchasing managers index fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction.

June factory output decreased, a reversal from gains in the month before, while new export orders and new orders overall decreased at a faster rate.

The index’s decline follows “the sequential reduction in both production and demand,” HSBC China economist Qu Hongbin said.

“Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures,” he said.

Chinese economic growth slowed unexpectedly in the first quarter to 7.7 per cent and forecasters have cut their growth outlook for the year. Mixed signals about factory activity and the strength of trade have raised questions about whether a full-fledged recovery was gaining traction. The weakness could also test Chinese leaders’ commitment to focusing on reforms to help the economy grow.

“Beijing prefers to use reforms rather than stimulus to sustain growth. While reforms can boost long-term growth prospects, they will have a limited impact in the short term. As such we expect slightly weaker growth” in the second quarter, Qu added.

China’s top economic official, Premier Li Keqiang, said last month that there’s little space for more government stimulus to boost growth and that improvement would have to come from economic reforms. China’s leaders have promised changes but have yet to announce details.

The preliminary PMI is based on responses from 85 to 90 per cent of 420 manufacturing companies polled each month. The full survey is due out on July 1.