China's Manufacturing Contracts for Third Month

Jan. 20, 2012
Growth is likely to moderate further.

The world's second largest economy slowed in January as the preliminary HSBC purchasing managers' index (PMI) stood at 48.8 in January, up marginally from 48.7 in December.

"The third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further," Qu Hongbin, HSBC chief economist for China, said on Jan. 20.

"We expect more policy easing to stabilize growth," he said.

The country's manufacturing activity contracted in November for the first time in 33 months, according to separate figures from the China Federation of Logistics and Purchasing (CFLP).

New manufacturing orders also contracted in December from November, but new export orders expanded, HSBC said.

"The ongoing slowdown of investment and exports implies more headwinds to growth and likely destocking pressures for manufacturers in the coming months," said Qu of HSBC.

China's exports rose 20.3% to $1.899 trillion in 2011, slowing from an increase of 31.3% in 2010.

The measure of PMI by HSBC has differed from official figures, which showed China's manufacturing unexpectedly rebounded in December on holiday shopping.

The economy expanded 9.2% last year, slowing from 10.4% in 2010, figures released this week showed, as global turbulence and efforts to tame high inflation put the brakes on growth.

Gross domestic product grew 8.9% in the fourth quarter alone, the National Bureau of Statistics said, slower than in the third quarter.

In a bid to boost growth and counter turmoil in the key export markets of Europe and the United States, China in December cut the amount of money banks must hold in reserve for the first time in three years.

Zhang Xinfa, a senior economic analyst at Galaxy Securities in Beijing, said: "The preliminary data shows the trend of a rebound in China's manufacturing activity, though it is not strong.

"However, demand -- especially domestic demand -- is not strong enough to reduce inventories and it is still affected by the overall economic environment," he added.

Copyright Agence France-Presse, 2012

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