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Factory activity indicator improving (2)

By Chen Jia and Yu Ran  (China Daily)

08:12, July 25, 2012

While the sub-index showed an increase in output, employment deteriorated to its worst level since March 2009, with a reading of 47.4, down from June's 48.8, the fifth consecutive monthly fall.

Meanwhile, new orders continued to contract but at a slower pace, with a reading of 48.9 in July, against 47.2 in June.

The HSBC flash index is based on purchasing manager survey responses, which are to be published in full in about a week.

Hu Xudong, manager of Zhejiang Fuyang Jin'aobo Shoe Co, was worried about shrinking profits.

About one-third of workers in his company have been let go after a production line was shut down in March.

"Our exports are about the same over the last six months but costs have risen," he told China Daily.

A report from the JPMorgan Chase said that the most dangerous threat to the world's second-largest economy could be declining corporate profits. This will deliver a double

blow of reducing investment and weakening domestic demand.

"Most small and medium-sized companies are struggling with reduced profits, due mostly to the slump in Europe," said Guo Junwei, the owner of a clothes manufacturer in Taizhou, Zhejiang province.

Guo added that cutting down the number of employees every three months is the most direct way to reduce labor costs if orders don't improve quickly.

More job losses are likely in the coming months, said Huang Yiping, chief economist in Asia with Barclays Capital.

"It has not been until this month that reports of job losses and migrant workers returning home have started to emerge," Huang said.

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