China Factory Activity Marginally Improves, the Pain continues

In June, China's factory activity abbreviated for the fourth straight month. However, the factory activity became better than in May. It seems that the economy is slowly rolling out but is still in need of support. China's Shanghai Composite index varied between gains and losses following the release of the final HSBC Purchasing Manufacturing Index (PMI). The HSBC PMI data closed in at 49.4 in June which is below a preliminary reading of 49.6, but above the 49.2 recorded in May. HSBC PMI data is focused more on small and medium sized firms.

China's official manufacturing PMI is placed at 50.2 in June, uniform from the previous month. The official data focused on larger, state-owned firms, while the private survey tends to concentrate on small and mid-sized companies which are facing more financing pressure. To make the demand remain stiff, the factories were forced to discount prices for their products at a faster rate.

Chinese employment in the manufacturing sector declined for the twentieth consecutive month in June, and firms cut employees at the highest rate since February 2009. The staff numbers fell due to the implementation of cost reduction policies.

"The final reading of the HSBC China Manufacturing PMI pointed to a further decline in the health of the manufacturing sector in June," said Annabel Fiddes, an economist at Markit. "On the upside, there were some signs of improvement in total new orders and new export business, suggesting demand both at home and abroad is reviving. However, it is likely that more stimulus measures will be required to ensure that the sector can regain growth momentum and to encourage job creation", mentioned in HSBC PMI report.

Last weekend, China's Central Bank lowered its lending rates for the fourth time since November 2014 and cut the cash reserve ratio as a measure towards catalyzing efforts to help an economy which was showing poorest performance in the recent quarter.

Today, the Shanghai index was trading around 5 per cent lower, while the blue-chip CSI 300 index was down more than 4 per cent.