A measure of Chinese manufacturing activity showed factory output shrank sharply last month in the face of waning orders, while officials pledged further steps to boost domestic demand to keep the economy from slowing too much.
Brokerage CLSA’s Purchasing Managers’ Index (PMI) yesterday fell to 45.2 last month from 47.7 in September. It is the weakest reading since the survey was launched in April 2004 and the third-straight month that it has come in below the boom-bust line of 50, indicating a manufacturing contraction.
The government’s official PMI for last month, released on Saturday, also plunged to a record low of 44.6 from 51.2 in September.
The pair of reports make gloomy reading for global policy makers hoping that China, which has accounted for about a quarter of incremental worldwide output in recent years, could crank up its contribution even more.
“Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession,” said Eric Fishwick, head of economic research at CLSA. “Costs are falling, but so are output prices. The coming 12 months will be difficult ones for manufacturers, China included.”
The economy has already slowed considerably. Annual GDP growth was 9 percent in the third quarter, down from 10.1 percent in the second quarter and 11.9 percent in all of last year.
Beijing has responded with a raft of fiscal and monetary policy measures, including three cuts in interest rates since mid-September and increases in tax rebates for exporters of labor-intensive goods.
The central bank has also stopped imposing strict lending limits on banks to ease the impact of the credit crisis, state media reported on Saturday.
With evidence mounting that even such steps will not be able to stave off a significant slowdown in exports, a key growth driver, a number of senior officials said the country should do yet more to boost domestic consumption.
Liu Tienan (劉鐵男), vice director of the National Development and Reform Commission, China’s top planning body, told a conference over the weekend that the next set of macroeconomic policy steps should use consumption to stimulate economic growth, the China Securities Journal said.
The paper yesterday also quoted central bank vice governor Su Ning (蘇寧) as saying that, while actively maintaining stable export growth, China should focus on efforts to expand domestic demand.
The government recently said it would invest 2 trillion yuan (US$292 billion) in railways in coming years, just one example of the fiscal firepower Beijing has to support growth.
Xinhua news agency on Saturday quoted Chinese President Hu Jintao (胡錦濤) as calling for more efforts to boost domestic consumption, while Premier Wen Jiabao (溫家寶) wrote that the government needs to ensure that growth remains fast enough to create enough jobs and maintain social stability.
China’s heavy dependence on exports may “increase the risk of external shocks,” Wen said.
“We must be crystal clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development ... and factors damaging social stability will grow,” Wen wrote in an essay for the Communist Party’s ideological journal, Seeking Truth.
In the article, Wen said the global financial crisis has made this the worst year for China in recent memory, with growth and inflation posing serious challenges.
“We must be aware that this year is the worst in recent times for our economic development,” Wen wrote. “The global financial turmoil and the economic downturn are getting worse. Inflationary pressure remains large, as world oil prices are still at a high level despite some corrections. All these negative factors have affected and will continue to affect China.”
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