Chinas Manufacturing Sector Contracts for First Time in 7 Months

China's Manufacturing Sector Contracts for First Time in 7 Months

The slowdown reflects both slower domestic demand and ongoing external headwinds which is a risk to China's fragile growth recovery, HSBC said.

BEIJING -- In another sign of the weakness of recovery in the world's second-largest economy, manufacturing activity in China contracted in May for the first time in seven months, HSBC said Thursday.

The British banking giant's preliminary purchasing managers' index (PMI) fell to 49.6 this month from a final 50.4 in April, putting it below the 50 mark that indicates contraction. A reading above signals expansion. It was the lowest figure since October's 49.5, according to the bank's data, and the first time it had been below 50 since then.

"The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds," said Qu Hongbin, an HSBC economist in Hong Kong, adding the slowdown cast "downside risk to China's fragile growth recovery."

The government should provide more support for the sluggish job market, possibly through measures such as training subsidies and tax cuts for employers, he said in a statement.

China grew at its slowest pace in 13 years in 2012, with gross domestic product expanding 7.8% in the face of weakness at home and in key overseas markets.

Economic growth rebounded to 7.9% in the final quarter of 2012, raising hopes of recovery, but fell back to 7.7% in January-March, with other recent indicators also dampening expectations.

Chinese leaders have said expansion will slow in the next stage of the nation's development from the near-double-digit yearly rises of recent decades, as they try to retool the economy to emphasise consumer demand as the key growth driver, rather than investment and exports.

The government has set its economic growth target for this year at 7.5%.

China normally exceeds its stated growth goals, but Yao said actual expansion could fall short of the target given the current economic situation.

"Anything above seven percent" might still prove acceptable to China's new leaders, she added.

"The key right now for the government is the job market. If the job market continues to hold, there is really not so much they would do about the cyclical growth."

Copyright Agence France-Presse, 2013

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