Sun, Mar 02, 2014 - Page 13 News List

China’s manufacturing at eight-month low: bureau

‘DISTORTED’:The decrease could largely be attributed to the effect of the Lunar New Year holidays, but China also had low crude steel output and high iron ore inventories


An employee works above a furnace containing molten steel at a factory of Dongbei Special Steel Group Co Ltd in Dalian, in China’s Liaoning Province, on Jan. 30.

Photo: Reuters

China’s manufacturing growth fell to an eight-month low last month, government figures showed yesterday, reflecting further weakening in the world’s second-largest economy, but also the effect of a major holiday.

The purchasing managers’ index (PMI) tumbled to 50.2, the National Bureau of Statistics reported on its Web site, in the third straight drop from 50.5 in January, 51.0 in December last year and 51.4 in November last year.

A figure over 50 indicates expansion, while one below shows contraction.

This marked China’s 17th consecutive month of manufacturing growth, but at a slowing rate — the lowest since a reading in June last year of 50.1. China’s economic growth has weakened in recent years, hitting 7.7 percent last year, the lowest level since 1999. Analysts expect a further drop to 7.5 percent this year.

The lowered forecast comes as Beijing has pledged to reform the country’s growth model so that consumers and other private actors play a more significant role, rather than massive and often wasteful state investment.

However, the recent Lunar New Year, China’s most important holiday, may also have dampened results, Bank of America Merrill Lynch economists Ting Lu (陸挺) and Zhi Xiaojia (治曉佳) said in a research note.

“We believe the drop was mainly impacted by the Lunar New Year holiday,” they wrote, adding that they expected a bounce back up to 50.5 this month.

“Markets will likely respond negatively to the reading, but the impact could be limited. Policies are unlikely to be impacted by these distorted PMI readings,” they said.

In another closely watched indicator of Chinese manufacturing, British banking giant HSBC said last week its preliminary PMI reading for last month dropped to a seven-month low, to 48.3, down from a final figure for January of 49.5. HSBC is set to release its final PMI reading for last month tomorrow.

Although the drop could be largely attributed to the festival effects, other indicators also point to a weaker-than-expected growth profile, Australia and New Zealand Banking Group Ltd (ANZ) said in a research note, citing China’s low levels of crude steel output and high levels of iron ore inventories.

“If the downward trend remains, we view that the risk of sub-7 percent growth in the first half of the year will increase,” ANZ said.

“If the Chinese authorities set the growth target unchanged at 7.5 percent in the upcoming National People’s Congress, we believe that the government will have to roll out pro-growth policies,” the bank said.

Japanese brokerage Nomura Holdings Inc also predicted in a recent research note that China will ease its monetary policy in the second quarter of this year.

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