Business conditions in China's manufacturing sector improved significantly in mid-Q2 2024. Production growth accelerated due to rising new orders, leading to increased backlogged work and purchasing activity. However, firms hesitated to hire more workers despite improved sentiment.
Input price inflation reached a seven-month high, while average selling prices remained stable. The Purchasing Managers’ Index (PMI) rose to 51.7 in May from 51.4 in April, marking the fastest growth in 23 months and the seventh consecutive month of sector improvement.
Manufacturing production rose at the quickest pace since June 2022, driven by higher new work inflows and stronger demand. Purchasing activity increased, and stocks of purchases rose for safety stock building. Conversely, stocks of finished goods contracted due to faster outbound shipments, and delivery lead times shortened for the third consecutive month.
Backlogged work accumulated at the fastest pace since September 2021. Firms remained cautious about hiring, with employment levels falling at a slower rate than in April. Input costs for Chinese manufacturers rose in May, driven by higher costs of metals, plastics, and energy. Export charges increased for the first time in three months.
Sentiment among Chinese manufacturers improved, with expectations of higher market demand locally and abroad supporting future production. Dr. Wang Zhe, Senior Economist at Caixin Insight Group, noted that while the economy is stable and recovering, pressure on employment and demand persists, necessitating stronger policies to boost domestic demand and employment.
