China’s manufacturing growth dropped last month to its lowest level of last year, an official survey released yesterday showed, as the sector struggles with weak domestic demand.
China’s official Purchasing Managers’ Index (PMI) released by the National Bureau of Statistics was 50.1 last month, down from 50.3 recorded in November.
The index, which tracks activity in factories and workshops, is considered a key indicator of the health of China’s economy. A figure above 50 indicates expansion, while anything below signals contraction.
Photo: AFP
“Growth momentum is still insufficient,” the bureau said in a statement.
British bank HSBC said on Wednesday that its PMI figure for the month fell to 49.6, down from the breakeven point of 50 in November.
The HSBC survey focuses on smaller companies, which are facing greater strains, notably higher financing costs and problems getting loans, while China’s official survey looks more at larger, state-owned firms, which have been more resilient to the protracted downturn, partly due to generous government subsidies and better access to credit.
“The decline of both official and HSBC PMIs suggests that China’s manufacturing sector, especially those industries related to property market, is still struggling due to sluggish domestic demand,” ANZ Research economists Liu Li-gang (劉利剛) and Zhou Hao (周浩) said in a note. However, some data suggest that “real activity indicators should have accelerated in the last month of 2014, supported by proactive fiscal policy.”
China’s central bank surprised economists in November by cutting benchmark interest rates for the first time in more than two years, in a move interpreted as an attempt to shore up flagging growth.
The People’s Bank of China also injected more funds into the banking system in recent months and relaxed restrictions to persuade risk-averse banks to lend more.
In addition, the economic planing agency has approved more infrastructure projects.
While its recent moves might have bought the central bank some time to see if conditions improve, many economists still expect more interest rate cuts as well as reductions in banks’ required reserve ratios this year, perhaps as soon as the first quarter.
The world’s second-largest economy looks set to start the new year on a weak note, reinforcing expectations that Beijing plans to roll out more stimulus measures to avert a sharper slowdown which could trigger job losses and debt defaults.
A property slump is expected to last well into this year, companies are set to continue struggling to pay off debt and export demand might remain erratic, leaving only the services sector as a bright spot in the economy.
Additional reporting by Reuters
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