China manufacturing growth at eight-month low

China manufacturing growth at eight-month low

China’s official Purchasing Managers’ Index (PMI) released by the National Bureau of Statistics came in at 50.3 last month, lower than the 50.8 recorded in October and the weakest since a similar 50.3 reading in March. The index, which tracks activity in factories and workshops, is considered a key indicator of the health of China’s economy, a major driver of global growth. A figure above 50 signals expansion, while anything below indicates contraction.

“The decline in the PMI was broad-based, led by output and new orders,” Nomura economists said in a note on the data. “The weaker PMI data implies that growth momentum remained weak in November,” they said, adding: “This helps explain the People’s Bank of China’s decision to cut benchmark interest rates” last month.

China’s central bank on Nov 21 surprised economists 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 PBoC lowered its one-year rate for deposits by 25 basis points to 2.75 per cent and its one-year lending rate by 40 basis points to 5.6 per cent.

The move came after a string of disappointing data showed the Chinese economy is struggling with not just stalling factory growth, but other problems including soft exports and a weakening property market. Authorities had for months utilised various kinds of limited stimulatory measures such as targeted cuts in bank reserve requirements – aimed at freeing up funds for lending – and a cash injection into the country’s five biggest banks for re-lending.


Separately, a closely watched private survey of manufacturing conditions was confirmed to have fallen to a six-month low showing stagnation. British bank HSBC’s final PMI for November came in at the 50.0 breakeven point dividing expansion and contraction, the bank said in a statement, matching a preliminary figure released last month.

The result, compiled by information services provider Markit, was lower than October’s 50.4 and the weakest reading since May’s 49.4. “Domestic demand expanded at a sluggish pace while new export order growth eased to a five-month low,” Qu Hongbin, HSBC’s chief China economist, said in the statement.

Qu added that the PBoC rate cuts will aid in stabilising investment in property and manufacturing in the months ahead. “We continue to expect further monetary and fiscal easing measures to offset downside risks to growth,” he added.

The Nomura analysts said they expect more measures next year, including another interest rate cut in the second quarter and a reduction in reserve requirement ratios in each quarter.

China’s economy expanded 7.3 per cent in the July-September quarter, down from 7.5 per cent in the previous three months and the slowest since 2009 at the height of the global financial crisis. A slowdown in China’s huge property sector has been weighing on overall growth, with broader worries about the health of the country’s financial sector also a cause for concern.

China’s housing prices fell on a monthly basis for the seventh straight month in November, a survey showed Sunday. The average price of a new home in China’s 100 major cities was 10,589 yuan (US$1,720) per square metre in November, down 0.38 percent from October, the independent China Index Academy said in a statement.

Julian Evans-Pritchard, China economist at Capital Economics, warned, however, against overconfidence in policy support to underpin growth. “The recent cut in the benchmark rates will do little to boost economic activity unless followed by a loosening of quantitative controls on lending, which policymakers will remain cautious about given concerns over mounting credit risk,” he said in a note.

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