Chinese companies cut hires as economy struggles, PMI says

Chinese companies cut hires as economy struggles, PMI says

A worker is seen in the workshop of a medical device manufacturing plant in Lianyungang, Jiangsu Province, China.


BEIJING – Chinese companies are abandoning more workers than they hire, even though the economy is experiencing some recovery from the pandemic, official data showed on Monday.

This is based on a survey by the National Bureau of Statistics, which asks companies how their operations have changed from the previous month, and compiles the responses in two purchasing manager indexes – one for manufacturing and one for Services.

Part of the clues shows whether companies are hiring more workers or downsizing – with 50 as the dividing line between expansion or contraction.

For manufacturing and services, the employment index remained below 50 in May, according to the statistics bureau. This indicates that companies are laying off more workers than they are hiring.

While some of the pressure on manufacturing jobs can be attributed to a five-day vacation at the beginning of May, the explosion of tourism during the same holiday period was not enough to significantly boost hiring in the service sector, said Bruce Pang, head of macro and strategic research at China Renaissance.

In the manufacturing sector, the employment index fell to 48.9 in May, down from 49.6 the previous month.

The service employment index rose to 48.9 in May from 48.7 in April – but was still below 50.

While the one-month numbers are not seen as a trend, the numbers fuel lingering concerns about the ability of the Chinese to find jobs and spend. Retail sales growth has been slower than that of the economy as a whole, and the figure missed analysts’ expectations in April.

The latest data has also highlighted some potential areas of weakness in the economy going forward.

Raw material prices have risen by far more than manufacturers could raise their selling prices, adding to fears that a soaring commodity prices are reducing profit margins.

An index of export orders – an indicator of foreign demand – fell sharply to 48.3 in May, from 50.4 in April. Including domestic business demand, the new orders index remained above the 50 line, at 51.3 in May, but was down from 52 in April.

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Sales activity has grown overall, with production remaining robust, the global purchasing managers index showed. In May, the manufacturing index stood at 51 while the services index posted a reading of 55.2 – indicating an expansion in activity in factories and service sectors.

The pressure on economic growth is likely to increase in the second half of the year, Nomura chief Chinese economist Ting Lu and his team said on Monday.

The expected pent-up demand for tourism and other consumer goods will decline, and exports will weaken as developed economies reopen and revert to purchasing local services rather than imported goods. Stricter regulation in the Chinese real estate market will also affect economic growth, while a surge in commodity prices will suppress real demand, analysts at Nomura said.

A similar survey of businesses conducted by the private sector is due out later this week. The Caixin / Markit manufacturing purchasing managers index is expected to be released on Tuesday, while the services index is expected to be released on Thursday.

ApkGeo News

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