China’s manufacturing activity contracted this month, while foreign direct investment fell for the first time in 28 months, data showed yesterday, as crises in the US and Europe drag on the economy.
The bleak data came as the Chinese Ministry of Commerce warned that export-driven China would face a “very severe” foreign trade situation in the first quarter of next year because of the “grim and complicated” global economic outlook.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 47.63 points, or 2.1 percent, to 2,180.90 at the close, the lowest since March 16, 2009. The CSI 300 Index declined 2.4 percent to 2,340.79.
The Shanghai Composite has slid 6.5 percent this month after reports showed growth in the world’s second-biggest economy is worsening.
The benchmark measure has tumbled 22 percent this year, matching the decline for the MSCI Emerging-Markets Index.
“Investors want to know how bad it will get and when it will start to reverse course, but we have yet to see any strong measures or policies that can substantially combat the economic issues,” said Shanghai--based Central China Securities strategist Li Jun (李俊) said. “In addition to domestic problems, global economic woes are dragging the index down.”
The preliminary HSBC purchasing managers’ index (PMI) reached 49 this month, slightly up from 47.7 last month — the first contraction in 33 months — as consumers from New York to Paris cut back on holiday spending because of deepening economic woes.
A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction. The final figure will be released on Dec. 30.
Other data showed China’s foreign direct investment last month fell 9.76 percent from a year earlier to US$8.76 billion, the first year-on-year decline for a single month since July 2009, the ministry said.
China took US$103.77 billion in the January-November period, up 13.15 percent from a year earlier, but slower than the 16 percent growth rate in the first 10 months, as US investment plunged 23.05 percent. European investment rose an anemic 0.29 percent to US$5.98 billion, while investment from Asian countries soared 17.98 percent to US$89.59 billion.
“The foreign trade situation next year is still very unclear, but it will be very severe in the first quarter due to the grim and complicated world economic outlook,” Chinese Ministry of Commerce spokesman Shen Danyang (沈丹陽) said.
Policymakers are anxious to prevent a sharp slowdown in the economy, but at the same time they want to avoid reigniting inflation, which hit a more than three year high of 6.5 percent in July.
Analysts expect the government to further ease credit restrictions in the coming months, as well as cut taxes for households and businesses and ramp up investment in infrastructure, such as social housing.
Despite the economic slowdown, the chances of a “sharp plunge” in China’s economic growth are not high, State Council Development Research Center macroeconomic research director Yu Bin (余斌) said.
Expansion in the fourth quarter will likely be below 9 percent, he said.