China’s manufacturing activity contracted for an 11th straight month this month, banking giant HSBC said yesterday, as factories struggled with weak demand and hard-to-sell inventories.
The preliminary reading of the purchasing mangers’ index (PMI) released by the British bank hit 47.8 this month, a mild improvement from a final reading of 47.6 last month, HSBC said in a statement.
However, the latest reading marked nearly a year of continuous contraction since November, underscoring broader economic weakness and shrinking demand in key overseas markets.
The index is closely watched as it gauges nationwide manufacturing activity, a key sector of the world’s second-largest economy. A PMI reading above 50 indicates expansion, while anything below 50 points to contraction.
China’s official PMI figure for last month released earlier this month hit a nine-month low of 49.2.
Qu Hongbin (屈宏斌), HSBC’s Hong Kong-based chief economist for China, said the lackluster manufacturing activity this month was due to “weak new business flows and a longer than expected destocking process.”
However, he said effects of the loosening measures authorities have taken in response to slowing economic growth should start to kick in during next quarter.
“The recent easing measures should be working to lead to a modest improvement from the fourth quarter onwards,” he said in the statement.
HSBC said final PMI figures for the month are scheduled to be released on Sept. 29.
Authorities this year have tried to boost the economy with interest rate cuts and by lowering the amount of cash banks must keep on hand in a bid to spur the kind of lending that could stimulate stronger growth.
China’s economic growth slowed to 7.6 percent in the three months through June, the sixth straight quarter of weakening expansion and the worst result since the height of the global financial crisis.
Weak economic data in the current third quarter have raised fears China’s growth may have slowed for a seventh straight quarter when GDP figures are released next month.
Problems in the broader global economy, including Europe’s prolonged debt crisis and a sluggish recovery in the US — both major trading partners for China — have been a drag on growth.
Analysts at consultancy Capital Economics expect China’s third-quarter growth to further slow to 7.1 percent due to uncertainties in the country’s property sector and the ailing global economy.
“Overall, there is not enough in the latest data to be confident the economy has turned the corner, though momentum does at least appear stable,” they said in a report on Wednesday, referring to previously released government figures.
Yao Wei (姚煒), economist at Societe Generale in Hong Kong, said that a “temporary recovery” in China’s economy could be expected in the fourth quarter as funds for infrastructure projects announced in past months are gradually invested.
However, uncertainties remain after policy makers have been cautious in imposing aggressive stimulus steps on concerns over banking risks after new loans doubled over the past three years.
“It is very hard and slow for China’s manufacturing sector to recover without sweeping stimulus measures,” she said.
Chinese Premier Wen Jiabao (溫家寶) said this month that China is still likely to achieve its annual economic growth target of 7.5 percent. Even so, that would mark a significant slowdown from 9.3 percent growth last year and 10.4 percent in 2010.