Fri, May 24, 2013 - Page 15 News List

China manufacturing declines

‘BAD SLOWDOWN’:China’s lower-than-expected preliminary PMI reflected slower domestic demand and external headwinds, an HSBC economist said


A woman sells toys on a street in Shanghai yesterday.

Photo: AFP

China’s manufacturing is contracting this month for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter.

The preliminary reading of 49.6 for a Purchasing Managers’ Index (PMI) released yesterday by HSBC Holdings PLC and Markit Economics compares with a final 50.4 for last month.

The number was also below the 50.4 median estimate in a Bloomberg News survey of 13 analysts. A reading above 50 indicates expansion.

“The slowdown is really bad,” said Ken Peng, a BNP Paribas SA economist based in Beijing.

“It’s a big probability now that China’s GDP growth rate in the second quarter will be lower than in the first quarter,” he said.

China’s growth unexpectedly slowed to 7.7 percent in the first quarter while remaining above the government’s full-year target of 7.5 percent.

Data earlier this month on fixed-asset investment and factory production missed forecasts and gauges of manufacturing and service industries declined. The economy expanded 7.8 percent last year, the slowest pace in 13 years.

HSBC is to release the final PMI reading on June 3. The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own PMI survey, with a bigger sample size, on June 1. The official PMI last month was 50.6, down from 50.9 in March.

The preliminary, or flash PMI is based on about 85 percent to 90 percent of responses from more than 420 manufacturers.

Yesterday’s data reflect “slower domestic demand and ongoing external headwinds,” Qu Hongbin (屈宏斌), HSBC’s Hong Kong-based chief China economist, said in a statement.

Signs of labor-market slack “call for more policy support,” Qu said. “Beijing still has fiscal ammunition to do so.”

A gauge of output showed a preliminary reading of 51 for this month, down from 51.1 last month, according to HSBC.

“We disagree with HSBC’s call for firing fiscal bullets” because it’s not in line with the new leadership’s policy, said Steve Wang, chief China economist in Hong Kong for Reorient Financial Markets Ltd.

Output is still expanding and an index of export orders improved, Wang said.

Previously released data showed industrial production rose 9.3 percent last month from a year earlier, below the median analyst estimate of 9.4 percent in a Bloomberg News survey.

Fixed-asset investment excluding rural areas rose 20.6 percent in the first four months of the year, compared with forecasts for 21 percent.

The National Development and Reform Commission, China’s top economic-planning agency, last month approved 54.6 billion yuan (US$8.9 billion) of subway projects in four cities, according to statements posted on the commission’s Web site.

UBS AG this week cut its economic growth forecast to 7.7 percent from 8 percent for this year, joining Goldman Sachs Group Inc, Royal Bank of Scotland Group PLC and JPMorgan Chase & Co in reducing estimates for this year’s expansion.

At the same time, economists have forecast that the People’s Bank of China is more likely to raise interest rates than cut them in the coming year.

Eight of 15 analysts surveyed by Bloomberg News earlier this month project an increase in the benchmark deposit rate by the end of June next year, compared with two who see a reduction.

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