Chinese manufacturing activity hit a seven-month low this month, data from HSBC showed yesterday, putting pressure on Beijing to do more to boost the world’s second-largest economy.
The banking giant said preliminary figures from its closely watched purchasing managers’ index (PMI), which gauges the manufacturing sector, fell to 48.1 from 48.4 last month on shrinking exports and weak domestic demand.
This month’s figure also marked the eighth consecutive month that manufacturing has contracted. A PMI reading above 50 indicates expansion, while a reading below 50 points to contraction.
Analysts said the results suggest China will move again to boost its slowing economy, after cutting interest rates earlier this month and encouraging more government investment.
“China’s manufacturing sector continued to slow in June,” HSBC co-director of Asian economic research Qu Hongbin (屈宏斌) said in the statement. “With external headwinds remaining strong, exports are likely to decelerate in the coming months.”
New export orders, a component of PMI, recorded their sharpest decline since March 2009, HSBC said, but did not give a figure. The bank will release the final data for this month next month.
China’s commerce minister said earlier this month that the country faced a “severe” trade situation this year, as weak demand in key exports markets such as the US and Europe hit the economy.
Last month’s exports were better than expected, rising 15.3 percent year-on-year to US$181.1 billion, but analysts say such growth may be short-lived.
In a further worry for the economy, weaker prices and a contraction in new orders suggested domestic demand is also flagging, Qu said.
“We expect more decisive policy stimulus to reverse the growth slowdown,” he said.
China on June 8 cut interest rates for the first time in more than three years in a bid to boost the economy, while the government has also trimmed the amount of cash banks must keep in reserve three times since December last year, most recently last month.
“China will likely speed up loosening monetary policy in the future, with the magnitude depending on the situation with the eurozone debt crisis and the recovery in the US economy,” Hong Kong-based Citic Bank International chief economist Liao Qun (廖群) said.
China’s economy grew an annual 8.1 percent in the first quarter — its slowest pace in nearly three years. The government has reduced its economic growth target for this year to just 7.5 percent, down from growth of 9.2 percent for all of last year and 10.4 percent in 2010.