China’s Purchasing Managers’ Index (PMI) for August 2024

Manufacturing PMI Overview

In August, China’s Manufacturing PMI stood at 49.1%, a decrease of 0.3 percentage points compared to the previous month, indicating a slight decline in manufacturing sentiment. When broken down by company size:

• Large enterprises maintained a PMI of 50.4%, down 0.1 percentage points but still above the 50-point mark.
• Medium-sized enterprises reported a PMI of 48.7%, down 0.7 percentage points.
• Small enterprises experienced a PMI of 46.4%, down 0.3 percentage points.

The five component indexes of the manufacturing PMI – production, new orders, raw materials inventory, employment, and supplier delivery times – all fell below the critical level. Specifically:

• The production index was recorded at 49.8%, down 0.3 percentage points.
• New orders index decreased to 48.9%, down 0.4 percentage points.
• Raw materials inventory index dropped to 47.6%, down 0.2 percentage points.
• The employment index declined to 48.1%, down 0.2 percentage points.
• Supplier delivery time index edged up to 49.6%, an increase of 0.3 percentage points but remained below the critical level.

Non-Manufacturing PMI Overview

On the other hand, the Non-Manufacturing PMI showed a marginal improvement, reaching 50.3%, a 0.1 percentage point rise from the previous month. This suggests a slight recovery in non-manufacturing activities.

• The Business Activity Index for the construction sector was 50.6%, a drop of 0.6 percentage points.
• The Service Sector Business Activity Index rose to 50.2%, an increase of 0.2 percentage points.

Notably, industries such as railway transport, air transport, postal services, telecommunications, broadcasting, television, satellite transmission services, and cultural and sports entertainment all exhibited high levels of activity, with indices above 55%. However, sectors like capital market services, real estate, and residential services were below the critical point.

The new orders index for non-manufacturing sectors improved to 46.3%, an increase of 0.6 percentage points, suggesting an improvement in demand. The input prices index fell to 48.6%, a decrease of 1.8 percentage points, indicating a reduction in overall input costs. The sales price index decreased to 47.2%, down 1.0 percentage points, reflecting a continuous downward trend in sales prices. The employment index was 45.2%, down 0.3 percentage points, indicating a decline in employment conditions. Despite this, the business activity expectations index remained positive at 55.3%, though it decreased by 0.8 percentage points, showing continued optimism among non-manufacturing businesses.

Composite PMI Output Index

The Composite PMI Output Index for August stood at 50.1%, a decrease of 0.1 percentage points from the previous month, but still within the expansionary range, signaling that business operations across the board continue to expand modestly.

Data Source: https://www.stats.gov.cn/sj/zxfb/202408/t20240831_1956161.html

China’s C919 Large Passenger Aircraft Delivery

Recently, Air China and China Southern Airlines simultaneously received their first C919 aircraft at the Commercial Aircraft Corporation of China (COMAC) assembly and manufacturing center in Pudong. This marks a pivotal moment as the C919 transits into multi-user operations.

Since the delivery of the first C919 to China Eastern Airlines in December 2022, seven C919 aircraft have already entered commercial service with China Eastern, operating on several regular routes.

As more airlines receive the C919, COMAC is moving into mass production. It is anticipated that COMAC will produce at least 13 C919 aircraft this year, a significant increase compared to the three aircraft delivered last year to China Eastern.

Future Production Plans for C919

Vice President Zhang Yujin of COMAC revealed that the company plans to achieve an annual production capacity of 150 aircraft over the next five years. To date, COMAC has received over 1,200 orders for the C919. While the current delivery rate is slower than the hundreds of aircraft delivered annually by Airbus and Boeing, COMAC has emphasized that the ramp-up in production will follow a gradual process, starting with smaller batches before scaling up.

The Power Struggle at Continental AG: The Push for Smart Driving and the Former CEO’s Exit

Continental AG, a global leader in automotive supply chain, has recently been at the center of a significant internal power struggle. This conflict, rooted in differing visions for the company’s future, culminated in the departure of its former CEO, Luo Yun, who was a strong advocate for advancing smart driving technologies.

Pushing the Boundaries of Smart Driving

The former CEO of Continental was a staunch proponent of smart driving and autonomous vehicle technology. He believed that, in face of growing competition from companies like Tesla and Waymo, Continental needed to assert itself as a leader in this emerging field. Under his leadership, the company made substantial investments in research and development, aiming to establish a dominant position in the future of mobility.

Strategic Disagreements Emerge

However, this aggressive push was not universally welcomed within the company. Some senior executives and board members were concerned that the focus on autonomous driving was too risky and could strain the company’s financial resources. They argued that Continental should concentrate on its traditional core businesses—such as tire manufacturing and automotive components—which had long been the foundation of its success.

The CEO’s Departure

These strategic disagreements eventually led to a leadership crisis. The former CEO, who had become the face of the company’s smart driving initiatives, found himself increasingly isolated. Facing mounting pressure from both the board and senior management, he ultimately stepped down. This move was widely seen as a result of the internal power struggle between those pushing for innovation and those advocating for a more conservative approach.

What’s Next for Continental?

With the former CEO’s departure, the future of Continental’s smart driving projects is now uncertain. The new leadership must navigate these internal divisions while responding to external pressures. The company’s next steps will be closely watched by industry observers, as they will likely influence not only Continental’s trajectory but also the broader automotive industry’s approach to autonomous driving.

IBM China R&D Team Restructured without Warning

It rained heavily in Beijing early Monday morning, August 26. Early in the morning, many IBM China R&D employees braved the rain to arrive at the company’s building in Zhongguancun Software Park. An all-hands meeting was waiting for them.

IBM has announced the closure of its China Development Lab and China Systems Lab, resulting in the layoff of over 1,000 employees across major cities including Beijing, Shanghai, and Dalian. This decision follows a sudden shutdown of employee privileges last Friday, leading to speculation about impending layoffs, which were confirmed during an all-hands meeting on Monday.

The China Development Lab, established in 1999, was a key player in IBM’s global software development, while the China Systems Lab, founded in 2004, focused on core R&D for IBM’s system product line. The closure signifies a significant shift for IBM, which has invested in China’s R&D for nearly 30 years.

IBM attributed the layoffs to market dynamics and increased competition, stating that these changes would not impact its ability to serve clients in Greater China. However, the company’s revenue in China has seen a sharp decline, dropping 19.6% in 2023, which contrasts with modest growth in other regions.

In response to these challenges, IBM’s Greater China leadership has outlined a strategy for 2024 focused on expanding its customer base and enhancing its presence in new markets, particularly within the private enterprise sector. The company recently launched WatsonX, an AI platform tailored for the Chinese market, aiming to position itself as a leader in the AI space despite facing stiff local competition.

Overall, this development reflects ongoing geopolitical tensions and the evolving landscape for multinational companies operating in China, as they navigate challenges and seek new opportunities in a shifting market.

In Late August, Prices of China’s Travel Products Declined

As the summer season draws to a close, a number of popular summer destinations within China have seen a reduction in airfares, with some routes now available at a price point of just over two hundred yuan.

For example, on August 28th, a Hangzhou-Hailar flight costs CNY 267, on August 29th, a Hangzhou-Lanzhou flight costs CNY 199, on September 4th, a Hangzhou-Beijing flight costs CNY 262, on September 2nd, a Hangzhou-Wuhan flight costs CNY 227, and on September 3rd, a Hangzhou-Zhuhai flight costs CNY 220. In comparison, on the eve of the National Day holiday on September 28, the cost of a Hangzhou flight to Hailar is CNY 2,586, while a Hangzhou flight to Lanzhou costs CNY 1,472. There is a significant price differential between the two.

In terms of departure from Shanghai, the cost of airfare to Hailar and Ordos decreased by 76% and 71%, respectively. Furthermore, the cost of airfare to Lijiang, Sanya, Lanzhou, and Urumqi decreased by more than 60%.

In addition, on August 20, the Chinese game “Black Myth: Wukong,” which has attracted the attention of game fans around the world, was officially launched, contributing to a boost in tourism in Shanxi. Tourists have been posting about the game’s ancient building location on major social media platforms.

There is a significant opportunity to promote cultural tourism in Shanxi through the development of ancient architectural sites. However, the current locations of these sites present a challenge they are remote and inconvenient to reach. To fully leverage this potential, it is essential for the local government to play a pivotal role in the advancement of cultural tourism.