Chinese businesses cut back on hiring as economy struggles, PMI shows

A worker is seen in the workshop of a factory that makes medical devices in Lianyungang, Jiangsu Province, China.

Reuters

BEIJING – Chinese companies are letting go of more workers than they are hiring, amid some recovery from the pandemic, official data showed on Monday.

This is based on a survey by the National Bureau of Statistics that asks companies how their business has changed from the previous month, and aggregates the responses into two purchasing managers’ indices – one for manufacturing and one for services.

Some of the indices reflect whether companies are hiring or shedding more workers – with 50 as the dividing line between expansion and contraction.

In both manufacturing and the service sector, the employment index remained below 50 in May, the statistics office said. This indicates that companies have laid off more workers than they hired.

While some of the pressure on manufacturing jobs can be attributed to a five-day vacation in early May, the tourism outbreak during the same holiday season wasn’t enough to significantly boost recruitment in the service sector, said Bruce Pang, director of macro and strategic research at China Renaissance.

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

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

While the numbers for a month are not considered a trend, the numbers lead to lingering concerns about the Chinese people’s ability to find work and spend money. Retail sales growth lagged that of the economy as a whole, and April numbers were below analysts’ expectations.

The latest data also pointed to some potential weaknesses in the economy in the future.

Commodity prices rose multiple times as manufacturers were able to raise their selling prices, which added to concerns that an increase in commodity prices will reduce profit margins.

An export orders index – a measure of overseas demand – fell sharply to 48.3 in May, compared to 50.4 in April. Including demand from domestic companies, the new orders index remained above the 50 line at 51.3 in May, but declined from 52 in April.

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Business increased overall as production remained robust, as the overall purchasing managers index showed. In May the manufacturing index was 51, while the services index was 55.2 – an indication of an expansion in factory activity and the service sector.

Pressure on economic growth is likely to mount in the second half of the year, Nomura’s chief economist China Ting Lu and his team said in a note on Monday.

The expected pent-up demand for tourism and other consumer goods will ease, and exports will weaken as developed countries reopen and buy local services again instead of imported goods. Tighter regulation of the Chinese real estate market will also affect economic growth, while an increase in commodity prices will suppress real demand, according to analysts at Nomura.

A similar private sector corporate survey is due to be released later this week. The purchasing managers’ index for the Caixin / Markit manufacturing sector is due to be released on Tuesday, while the index for services is due to be released on Thursday.

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