China's manufacturing activity slumped to its lowest level in 32 months in November, the banking and financial services company HSBC said Wednesday, renewing fears the Asian powerhouse is losing steam amid global economic woes.
The news comes just days after Vice Premier Wang Qishan, China's top finance official, gave a dire warning that the global recession is here to stay and will impact the export-dependent economy due to weakening external demand.
The preliminary HSBC purchasing managers index (PMI) dropped to 48 in November -- the lowest since March 2009 -- compared with 51 in the previous month, HSBC said in a news release.
A reading above 50 indicates that the sector is expanding, while a reading below 50 suggests a contraction. The final figure will be released on Dec. 1.
China's Economy at 'a Tipping Point'
Investment bank Nomura's chief economist for China, Zhang Zhiwei, said the weak manufacturing data has increased the risk that the country's economic growth could dip below 8% in the first quarter next year.
"China's economy faces a tipping point," he said in a research note.
China's economic growth eased to 9.1% in the third quarter from 9.5% in the second quarter, as government efforts to tame inflation and economic turbulence in Europe and the United States curbed activity.
HSBC chief China economist Qu Hongbin said cooling domestic demand and weakening external demand for China's exports herald a further slowdown in production in coming months.
But he added that China has more room to ease its tight monetary policy to boost the slowing domestic economy, as inflation is now in check.
Beijing, anxious about high inflation, has pulled on a variety of levers to curb price rises in the past year, including restricting the amount of money banks can lend and hiking interest rates.
The measures appear to have worked, as inflation slowed sharply in October, with the consumer price index rising 5.5% year-on-year, the slowest pace since May as food prices fell.
"It will leave more room for Beijing to step up selective easing measures, which should gradually filter through to keep China on track for a soft landing," Qu said.
Wang warned that China needs to fix "structural problems" in its financial system to cope with a "long-term" global downturn that threatens the world's second-largest economy.
"For an economy like China that depends heavily on exports, the key is to understand the situation and put one's own house in order," the official Xinhua news agency quoted him as saying on Saturday.
Chinese leaders are trying to shift the country away from exports in favor of greater domestic consumption as the main engine of economic growth.
Liu Hongke, a Beijing-based economist at investment bank CCB International, said the latest PMI will boost the case for monetary easing, such as trimming reserve requirements for banks -- the funds they must put aside as reserves.
"This may speed up the loosening of monetary policy," he told AFP.
Chinese stocks closed down 0.73% on Wednesday after the PMI figures sparked renewed concerns of a domestic economic slowdown.
Other Asian markets fell after figures showed that the U.S. economy expanded more slowly than previously thought, with the Chinese data adding to the downbeat mood.
Copyright Agence France-Presse, 2011