China Caixin Services PMI Dips, Profit Margins Squeezed—Will Beijing Act?

Notably, firms across the private sector absorbed rising costs due to the competitive landscape, suggesting continued corporate profit woes. Failure to introduce further subsidies may place extra pressure on the labor market. Manufacturers and service providers may need to lower staffing levels to manage fixed costs and limit the impact of competition on profit growth.

East Asia Econ remarked on China’s manufacturing sector PMI numbers from earlier in the week, stating:

“The Caixin PMI rose above 50 in June, but only to 50.4. Comments remained cautious. “Firms were generally cautious with hiring on the back of cost control”. A ‘fourth monthly reduction in average input costs’ was shared with clients, resulting in another decline in average selling prices measures.”

The Caixin Manufacturing PMI rose from 48.3 in May to 50.4 in June despite falling new export orders, pricing issues and job losses.

Hang Seng Index Drops as Markets Eye Beijing for Stimulus

Investors reacted to the weaker-than-expected Caixin Services PMI and concerns about waning overseas demand, the labor market, and corporate profits.

The Hang Seng Index dropped 1.09% to 23,955. However, Mainland China stocks had a mixed morning session. The CSI 300 gained 0.21%, while the Shanghai Composite Index fell 0.11% in early trading. Hopes for further stimulus from Beijing to bolster the labor market and boost domestic consumption cushioned the losses for the Hang Seng and Shanghai Composite Index.

Still, Mainland markets maintained modest YTD gains amid investor stimulus hopes. The CSI 300 was up 0.39% YTD, with the Shanghai Composite Index up 2.92%. While the mainland markets trailed the Nasdaq Composite Index, up 5.60% YTD, the Hang Seng Index led the way, soaring 19.29% YTD, benefiting from Mainland investor demand.