Asian manufacturing picks up, exports still subdued

BEIJING/TOKYO Tue Jul 1, 2014 1:25am EDT

An employee inspects newly-made drug capsules at a factory in Jingzhou, Hubei province June 30, 2014.  REUTERS/Stringer

An employee inspects newly-made drug capsules at a factory in Jingzhou, Hubei province June 30, 2014.

Credit: Reuters/Stringer

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BEIJING/TOKYO (Reuters) - Manufacturing activity in Asia's industrial powerhouses China and Japan gained pace in June, fueled mainly by improving demand at home, but a long-awaited bounce in exports remained slow in coming.

Manufacturing surveys on Tuesday confirmed preliminary readings last month that showed factory output expanding across Asia following months of decline in its two biggest economies.

But the surveys' new export indexes, which gauge the strength of overseas demand, showed only tepid growth in a sign that the region has yet to capitalize on an uneven recovery in the euro zone and delayed upturn in the U.S. economy.

China's final HSBC/Markit purchasing managers' index (PMI) rose to 50.7, slightly below its preliminary reading, but confirming its first expansion in six months, from 49.4 in May.

China's official gauge, which is geared more towards bigger state-owned firms, hit a six-month high of 51.0.

"The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments," said Qu Hongbin, chief economist for China at HSBC.

Asian shares firmed slightly after the surveys, which reinforced market views that the world's second-largest economy was steadying thanks to stimulus steps taken by Beijing after growth dipped to an 18-month low of 7.4 percent in the first quarter.

Such measures have included targeted reserve requirement cuts for some banks to encourage more lending, quicker fiscal disbursements and hastening construction of railways and public housing projects.

However, a downturn in the property sector is clouding the outlook and economists expect Beijing to stand ready to ease fiscal and monetary policy further to counter any major spillover into the broader economy.

The surveys showed export orders growing only marginally, and policymakers in Beijing and the rest of Asia will be looking ahead to U.S. data to confirm that the world's biggest economy and Asia's major export market has finally put its weather-beaten start to the year firmly behind it.

In Japan, central bank and purchasing managers surveys painted a similar picture of improving manufacturing activity combined with still disappointing export performance.

With an April 1 sales tax increase still acting as a drag, the Bank of Japan's business optimism gauge dipped in the second quarter, but companies expressed optimism about the outlook, declaring readiness to boost capital investment and output.

Economists expect a recovery in coming months in both exports and consumer demand, which is being supported by continued hefty central bank money injections and government spending.

The Markit/JMMA purchasing managers' index for June showed factories were already cranking up activity, with its main gauge coming in at 51.5, above the preliminary reading of 51.1 and topping the 50-point mark for the first time in three months.

Yet, as in China, an anticipated rebound in exports remained elusive, with the new export orders index still contracting marginally.

In Indonesia, Southeast Asia's largest economy, manufacturing activity rose to a record solely on the back of the strength of domestic demand that offset a dip in export orders.

The impact of disappointing exports was on full display in South Korea, Asia's fourth-largest economy, which unlike China or Japan cannot rely on domestic demand to take up the slack with high household debt weighing on consumer demand and the government cutting back on its spending.

The HSBC/Markit purchasing managers' index slid to a seasonally adjusted 48.4 in June from 49.5 in May, its worst in 10 months. Separate government data showed exports in June up 2.5 percent from a year earlier, well below a median 5.1 percent forecast in a Reuters poll.

India, the continent's third-largest economy, bucked the trend, owing the rise in its manufacturing gauge to a four-month high primarily to improved overseas demand.

"Things are gradually improving in India's manufacturing sector. Output picked up in June, supported by growing order flows, especially from overseas," said Frederic Neumann, co-head of Asian economic research at HSBC.

(Reporting by Xiao Shao and Kevin Yao in Beijing, Stanley White, Leika Kihara and Tetsushi Kajimoto in Tokyo, Christine Kim and Choonsik Yoo in Seoul, Nilufar Rizki in Jakarta and Anu Bararia in Bangalore; Writing by Tomasz Janowski; Editing by Kim Coghill)

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Comments (1)
carlmartel wrote:
This is not a major surprise. The EU, China’s biggest trade partner had -0.3% GDP growth in 1Q 2014. The Ukraine crisis with Russia is causing concerns about gas disruptions, and the EU imposes sanctions on itself. Sanctions bite the sanctioner as well as the sanctionee. If 2Q 2014 has negative GDP growth, the EU will be in recession. The US, China’s 2nd biggest trade partner had -2.9% GDP growth in 1Q 2014. In 2Q 2014, housing starts are down 7.4%, GM recalled 20 million cars, drought raises food prices, ACA takes 2%+ of US GDP, and oil remains about $105 per barrel. The last three reduce consumer spending that is 2/3 of US GDP. If 2Q 2014 US GDP growth is negative, the US will be in recession. China develops new markets, but the EU and US remain China’s biggest two trade partners, so “export indexes…showed only tepid growth.”

Jul 01, 2014 8:08pm EDT  --  Report as abuse
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