China’s official factory gauge signaled a record sixth consecutive month of deterioration, raising the stakes for policymakers struggling to prop up the economy amid a second bear market in stocks since June last year and a currency at a five-year low.
The purchasing managers’ index (PMI) dropped to a three-year low of 49.4 last month, China’s National Bureau of Statistics (NBS) said yesterday. That compared with a median estimate of 49.6 in a Bloomberg survey of economists. Numbers below 50 indicate contraction. The official services index also fell, while a private PMI survey signaled that the industry shrank for an 11th consecutive month.
The reports could worsen the dilemma for policymakers: Add monetary stimulus to help stem the slowdown in growth, or avoid more easing that could exacerbate record capital outflows and put more pressure on the yuan. Chinese stocks fell, extending last month’s steepest monthly rout since 2008, threatening to further shake investor faith in how the authorities can manage the world’s second-largest economy.
Photo: AFP
“What has happened on the capital account, and how the authorities seem to want to respond to this in terms of policies, makes it harder for them to respond to the weak economy by mainstream, forceful monetary measures,” Oxford Economics Hong Kong-based analyst Louis Kuijs said.
He said he expects more “quasi-fiscal policies” such as expedited spending on infrastructure to be announced in coming months.
The People’s Bank of China cut the main interest rate six times from late 2014 to late last year to a record-low 4.35 percent. It has also made a series of reductions to the reserve-requirement ratio for big banks, allowing them to keep less cash locked up at the the central bank. Meanwhile the US Federal Reserve in December last year raised rates for the first time in nine years.
China’s capital outflows in that month jumped, with the estimated total last year reaching US$1 trillion according to a Bloomberg gauge, amid a 6.9 percent economic expansion that was the slowest in 25 years.
The Shanghai Composite Index yesterday slid 1.8 percent to 2,688.85 at the close, extending its loss this year to 24 percent. The Hang Seng Index retreated for the first time in four days, losing 0.7 percent.
The official manufacturing gauge’s six months below 50 is the longest stretch of readings below that level in NBS data since the start of 2005. The PMI slumped last month because of weak demand and efforts to reduce overcapacity, NBS said in a statement yesterday. Indicators for new export orders and imports also decreased from a month earlier.
The non-manufacturing PMI for services last month edged down to 53.5 from a 16-month high of 54.4 in December last year.
The private manufacturing survey released yesterday showed some improvement, although it has been below 50 since February last year. The Caixin/Markit China manufacturing purchasing managers’ index rose to 48.4 last month from 48.2 in December last year. New orders rose from the prior month, climbing to the highest level since June last year.
“The economy is still in the process of bottoming out and efforts to trim excess capacity are just starting to show results,” Caixin Insight Group (財新智庫) chief economist He Fan (何帆) wrote in a statement released with the data. “The pressure on economic growth remains intense in light of continued global volatility. The government needs to watch economic trends closely and proactively make fine adjustments to prevent a hard landing.”
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