China CFLP July Mfg PMI Below Forecast as New Orders Slow Down

--Mfg PMI Above 50 For 12th Consecutive Month

--Services PMI Falls to 54.5 from 54.9 in June

     BEIJING (MNI) - PMI data released Friday by the China Federation of

Logistics and Purchasing:

      Manufacturing PMI  Services PMI

-------------------------------------

June               51.4          54.5

May                51.7          54.9

     Note: Readings above 50 indicate expansion in the sector, while readings

below 50 signal contraction. The higher the PMI reading above 50, the faster the

expansion in the sector. The lower the reading below 50, the faster the

contraction.

     FACTORS:

     --Manufacturing new orders index fell to 52.8 in July from 53.1 in June

     --Manufacturing output index fell to 53.5 in July from 54.4 in June

     --Input price index rose to 57.9 in July from 50.4 in June

     --Business expectations index rose to 59.1 in July from 58.7 in June

     --New export orders fell to 50.9 in July from 52.0 in June

     TAKEAWAYS: The official China manufacturing purchasing managers index

(PMI), jointly released by the China Federation of Logistics and Purchasing

(CFLP) and the National Bureau of Statistics, fell to 51.4 in July from 51.7 in

June. The July reading was the first fall since April  this year. 

     The services PMI also fell in July, to 54.5 from 54.9 from in June, the

tenth consecutive month that the reading has been above the 54 mark, a

relatively strong reading, the CFLP/NBS data show.

     The slowdown in the July manufacturing PMI was unexpected, with the median

forecast of an MNI survey showing a median for the index to ease back to 51.5.

The July reading was the 12th consecutive month manufacturing sentiment has been

above the 50-point mark, which divides expansion from contraction. And this was

also the 10th consecutive month that the index has been above the 51-point

market. 

     The main dragging force was foreign demand. The new export ordera fell 1.1

percentages to 50.9, compared with the strong reading of 52.0 in June.

     The July index indicated "imports and exports maintained growth in July,

but the pace has slowed down," Zhao Qinghe, an analyst with the National Bureau

of Statistics, said in the statement. 

     Production sentiment also showed a weak increase. The production index fell

to 53.5 from 54.4 in June.

     The index of overall new order edged down to 52.8 from the previous 53.1. 

     "The constant hot weather and flood disasters in certain regions

contributed the slowdown of production," Zhao said, adding "the gap between

output and input was gradually narrowed, indicating the relationship between

supply and demand is improving. "

     Manufacturers continued to increase raw material purchases, so the output

price and raw material purchasing price both bounced up. The input price jumped

to 57.9, the highest since this March when it recorded at 53.4, while the output

rose to 52.7 from the previous 49.1, according to the statement of NBS.

     Chen Zhongtao, economist with the CFLP, said "the gap between the input and

output price will raise costs and reduce profits of the downstream

manufacturers, which will harm the stability of the economy."

     Among the five main sub-indexes that make up the main PMI index, raw

material inventories and employment were below 50, the point that separates

expansion from contractin.

     The raw material inventories fell to 48.5 from 48.6 in June as the

manufacturers continued to cut inventories, while employment 49.2 from the

previous 49.0

     By enterprise size, business activity among big manufacturers improved,

with the index rising to 52.9, up 0.2 percentage points from June. However,

sentiment among medium- and small-size manufacturers declined, though the index

remained above 50, NBS Zhao said.

     High-technology and equipment manufacturing contracted in July, but their

PMI was still over one point higher than the total manufacturing PMI.

     However, over 40% of manufacturers complained about the rising labor cost,

Zhao said.

     The fall of the PMI index is also due a higher previous comparison base,

CFLP's Chen said. 

     "We think the manufacturing sector is maintaining a stable improvement in

momentum, and the macro control policy should keep its continuity, " Chen

concluded. 

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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