China Manufacturing PMI shows manufacturing sector continues to expand

The CLSA purchasing manager’s index rose to a 12 month high of 52.8 in July, up from 51.8 the previous month.  The data continues to show that the manufacturing sector in China is expanding after the considerable contraction that was brought about by the decline in consumer demand from the West.   This was seen by the firms surveyed as a result of increasing order books on the back of the tentative signs of a recovery. Notably, the expansion in the manufacturing sector was largely seen as being a result of increased domestic demand and the same trend was not seen in the export sector, which remained lacklustre in July.

This expansion has led to an increase in employment within the manufacturing sector as well as price inflation.  According to the latest data, there are now indications that input price inflation has been measured for the first time since September 2008.   This may lead to an increase in the number of vendors looking to maintain margins by passing on raw material increases to the buyers.  However, we believe that with the export sector still markedly weak in comparison with 2 years ago, due to a lack of consumer demand from the West, the attractions of international business will continue to present a buyer’s market with regards to sourcing from China.   Until consumer demand picks up in the West, which as in America is still indicating weak trends in almost all areas of discretionary spending, it is likely that there are still opportunities to be taken advantage of from a buyer’s perspective.

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