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China Manufacturing Index Slips in December

Jan. 2, 2014
"The fall in the weaker-than-expected official PMI reinforces our view that growth momentum entered a downtrend" in the fourth quarter from a peak in the third, Nomura International analysts said in a research note.

BEIJING - China's manufacturing growth slowed in December for the first time in six months, official figures showed on Wednesday, suggesting the world's second-largest economy faced headwinds at the end of last year.

The purchasing managers' index (PMI) was at 51.0, down from November's 51.4, the National Bureau of Statistics said on its website. A reading above 50 signals expansion while a figure below indicates contraction.

It marked the 15th straight month of growth but it is the first time the figure has dipped from the previous month since June.

The result came in below the median 51.2 forecast of eight economists by The Wall Street Journal as reported by Dow Jones Newswires.

"The fall in the weaker-than-expected official PMI reinforces our view that growth momentum entered a downtrend" in the fourth quarter from a peak in the third, Nomura International analysts said in a research note.

British bank HSBC last month said China's manufacturing activity in December expanded at its slowest rate in three months, in its preliminary PMI index.

The bank's final PMI reading for December is scheduled to be released on Tuesday.

China's economy, an important driver of regional and global growth, expanded 7.8% from July to September, snapping two quarters of slowing, but analysts warn vulnerabilities remain.

The December PMI indicates "that real activity could have slowed in the month due to continued liquidity tightness," ANZ bank economists Liu Li-Gang and Zhou Hao wrote in a separate note.

Liquidity Squeeze

China was hit last month by a liquidity squeeze that sent interest rates soaring in a development widely seen as engineered by officials aiming to increase financial discipline over the country's banks. The financial system experienced a similar cash crunch in June.

Liu and Zhou also stressed that slides in the new orders and export orders components of the PMI in December indicate a weak demand environment.

A government report cited by state media last week suggested China's economy grew 7.6% in 2013, slightly above its official target for the year and just below the 7.7% expansion in gross domestic product in 2012 -- the worst growth rate for 13 years.

In March, China announced an official target of 7.5% GDP growth for 2013. The government usually announces a conservative number that it regularly surpasses.

Liu and Zhou maintained their forecast that China's economic growth may have slowed to as low as 7.5% in the fourth quarter while expecting a figure of 7.6% for all of 2013.

The Nomura analysts -- Zhang Zhiwei, Hua Changchun and Wendy Chen -- expect economic growth to slow to 7.6% in the fourth quarter before weakening further to 7.5% in the first three months of this year and 7.1% in the April-June period.

"We remain concerned about the sustainability of investment by local government financing vehicles (LGFVs) and property developers given elevated interest rates," they added.

China on Monday announced that liabilities carried by local governments ballooned to 17.9 trillion yuan ($2.95 trillion) as of the end of June.

The figure was included in the results of a long-awaited nationwide debt probe by the National Audit Office and compared with 10.7 trillion yuan as of the end of 2010 -- an increase of 67%.

Local authorities have long used debt to fuel growth in their regions, often by pursuing projects that are not economically viable or sustainable.

The burgeoning liabilities at the local level have raised concerns of a potential drag on its economy unless steps are taken to rein them in.

- Kelly Olsen, AFP

Copyright Agence France-Presse, 2014

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