China CFLP October Manufacturing PMI Below Estimates

--Official Mfg PMI Above 50 For 15th Consecutive Month

--Official Services PMI Fell to 54.3 from 55.4 in Sept.

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

Logistics and Purchasing:

           Manufacturing PMI  Services PMI

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

October                 51.6          54.3

September               52.4          55.4

     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 52.9 in October from 54.8 in

September.

     --Manufacturing production index fell to 53.4 in October from 54.7 in

September.

     --Input price index fell to 63.4 in October from 68.4 in September.

     --Business expectations index fell to 57.0 in October from 59.4 in

September.

     --New export orders fell to 50.1 in October from 51.3 in September.

     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 51.6 in October from 52.4

in September. It was the first decline in three months after the headline

reading surged to its highest level in five years in September.

     The slowdown in the October manufacturing PMI was unexpected, with the

median forecast of an MNI survey predicting a reading of 52.0. However, the

October reading was still the 15th consecutive month that manufacturing

sentiment has been above the 50-point mark, which divides expansion from

contraction. It was also the 13th consecutive month that the index has been

above the 51-point market. 

     All the main five sub-indexes that make up the PMI slowed in October.

Production fell 1.3 percentage points to 53.4, while overall new orders fell 1.9

percentage points to 52.9, due to the higher comparison base in September and

the weeklong National Day holiday, the NBS said. The production and new orders

readings softened for the first time after three straight months of rises.

     Among the other three sub-indexes, raw material inventories and supplier

delivery times eased to 48.6 and 48.7 respectively, compared with 48.9 and 49.3

in September, respectively, while employment remained the same at 49.0. 

     The NBS also attributed the overall PMI slowdown to the enforcement of

strict environmental protection policies. "Production in high energy-consuming

and polluting sectors have seen an obvious decline as the policies have been

further strengthened," NBS economist Zhao Qinghe said in a separate statement.

"PMI in the relevant sectors fell 2.1 percentage points to 49.2%, below the

expansion point."

     For the eight sub-indexes related to the PMI manufacturing index, both

export and import indexes softened below 51 to 50.1 and 50.3, respectively.

Imports fell below the 51 level for the first time in five months and export

orders dropped to the lowest level this year.  

     "The fall of new export orders indicated that growth in exports slowed in

recent months. Domestic demand tended to be stable as the increase of investment

eased," said Zhang Liqun, an analyst with the CFLP. 

     Input and output prices decelerated to 63.4 and 55.2, respectively, in

October, compared with 68.4 and 59.4 in September. It was the first decline for

both in four months. 

     The gap between input and output prices narrowed to 8.2 percentage points

from the previous 9 percentage points, indicating that pressure from rising

prices of raw materials eased.

     "Manufacturers complaining about higher costs due to rising prices of raw

materials fell below 40%, 4 percentage points lower than last month," said Chen

Zhongtao, an economist with the CFLP. "The deceleration of rising prices helped

to reduce inflation pressure and correct the distortion in the process of

resource allocation."

     The sub-index of finished goods inventories and orders on hand were each

below 50.

     Manufacturers' confidence about the future eased further to the lowest

level in five month. The business expectations sub-index fell to 57.0 from 59.4.

     By enterprise size, business activity among big manufacturers softened at a

faster rate, with the index falling to 53.1, down 0.7 percentage point from

September. Sentiment among medium-size manufacturers decline 1.3 percentage

points to 49.8, while among small ones it fell 0.4 percentage point to 49.0,

according to the NBS statement.

     "In the future, domestic and overseas demand is expected to rebound as

Christmas and Chinese New Year approach," Chen said.

     The CFLP services PMI was solid in October, at 54.3, but it represented a

decline from September's 55.4 reading. The CFLP attributed the slowdown to the

weeklong National Day holiday, during which the construction sector partly

suspended production. 

     Wu Wei, a CFLP economist, said he did not expect to see the slowdown

continue, given the increased demand that usually occurs at the end of the year.

--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

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

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