China April factory activity contracts again, more layoffs - Caixin PMI

BEIJING (Reuters) - Activity at China’s factories shrank for the 14th straight month in April as demand stagnated, forcing companies to shed jobs at a faster pace, a private survey showed on Tuesday, adding to questions over whether the world’s second-largest economy is recovering.

An employee works inside a steel factory in Kashgar, Xinjiang Uighur Autonomous Region, China, March 10, 2013. REUTERS/Stringer/Files

The Caixin/Markit Manufacturing Purchasing Managers’ index (PMI) fell to 49.4 last month, below market expectations of 49.9 and recoiling slightly from March’s 49.7.

The index has been below the 50-point neutral level which marks expansion in activity from contraction since March 2015, though the rate of decline has eased recently, raising hopes that the sector’s prolonged slump may be bottoming out.

New export orders shrank for the fifth straight month, and roughly at the same rate as in March, while total new orders from at home and abroad were unchanged.

That prompted factory owners to trim output, albeit slightly, and shed jobs at a faster rate. Output edged into contractionary territory with a reading of 49.9, from March’s 50.4.

“All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the neutral level,” He Fan, chief economist at Caixin, said in a note.

“The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn,” He said.

Employment levels fell for the 30th month in a row. Firms that reported reduced staff numbers cited company down-sizing policies and the non-replacement of workers who left voluntarily.

Inflationary pressures also intensified in April. But despite sluggish demand, companies were able to raise their selling prices to reflect higher input costs.

Though China’s GDP growth slowed in the first quarter, official data for March was more upbeat, raising hopes that the economy is steadying.

But the latest Caixin survey and the official China factory survey released on Sunday present a more mixed picture.

The official survey showed activity expanded for the second month in a row in April but only marginally, lagging expectations. While output continued to grow modestly, order growth softened and job shedding quickened.

While the Caixin survey focuses more on small and medium-sized private firms, the official manufacturing gauge gives more weight to larger state-owned enterprises such as steel mills, which have enjoyed a recent boost from a property market recovery and a rebound in commodity prices.

China’s economy grew at an annual rate of 6.7 percent in the first quarter of 2016, its slowest pace since 2009.

Reporting by Jessica Macy Yu; Editing by Kim Coghill