Fri, Dec 02, 2011 - Page 10 News List

Manufacturing activity falls in China

SLOWDOWN:China’s PMI fell to 49 last month, down 1.4 points from October, the first contraction in 32 months, the China Federation of Logistics and Purchasing said


China’s manufacturing activity contracted last month for the first time in 33 months, official data showed yesterday, as deepening global economic woes impact the country’s key export sector.

The data came a day after China reduced the amount of money banks must keep in reserve — the first cut in three years — as it looks to ease monetary policy in the face of a slowing economy.

The purchasing managers index (PMI) fell to 49 last month, down 1.4 points from October, marking the first contraction since February 2009, the China Federation of Logistics and Purchasing said in a statement.

A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction.

HSBC said its manufacturing activity index also fell to a 32-month low of 47.7 last month from 51 in October, slightly worse than preliminary data released last week and signaling a “solid deterioration” in the sector.

IHS Global Insight analyst Alistair Thornton said the “shocking” data showed that the world’s second-largest economy was “sagging under the weight of this year’s credit tightening.”

Most of the measures in the official survey deteriorated last month, with new orders and new export orders contracting, suggesting weakening demand in China as well as Europe and the US for Chinese-made products.

The weak figures signaled that China’s economy “would continue to slow,” government analyst Zhang Liqun (張立群) said in the statement.

However, he ruled out a “huge downfall” because of the strength of domestic investment and consumption.

HSBC chief economist Qu Hong-bin (屈宏斌) said the data, combined with a faster than expected easing in inflation, implied “growth is set to overtake inflation as Beijing’s top policy concern.”

Credit Suisse analysts played down fears of a sharp slowdown in economic growth, saying the PMI data was weak but was “not collapsing to the below-40 level as was seen in 2008.”

On Wednesday authorities cut bank reserve levels for the first time since 2008 to help boost lending and spur growth, to counter alarming signs of a domestic slowdown and the crisis in key export markets.

Analysts had forecast such a move after the central bank recently said it would “fine-tune” monetary policy amid growing concerns that the weak global economy is increasing the risk of a sharp slowdown in China.

“The message is clear: the economy is slowing much faster than expected and the government has stepped into the ring. The loosening campaign has begun,” Thornton said. “We expect this to feed through into slower industrial production growth numbers for November and slower GDP numbers for the fourth quarter.”

Meanwhile, India’s manufacturing growth eased last month, adding to signs of an economic slowdown, even as capacity constraints stoke inflationary pressures.

India’s PMI fell to 51 from 52 in October, HSBC and Markit Economics said in an e-mailed statement yesterday.

India’s “economic activity in the manufacturing sector continues to grow at a slower clip led by a deceleration in domestic orders,” said Leif Eskesen, a Singapore-based economist at HSBC. Inflation pressures “are not abating” and the central bank would have to keep “monetary conditions tight for an extended period,” he said.

additional reporting by Bloomberg

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