China’s Manufacturing Activity at a 32-Month Low on Slowing Demand
Shanghai. China’s manufacturing activity slumped to its lowest level in 32 months in November, banking giant HSBC said on 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 was here to stay and would 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 statement.
A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction. The final figure will be released on December 1.
HSBC chief China economist Qu Hongbin said he expected cooling domestic demand and weakening external demand for China’s exports heralded a further slowdown in production in coming months.
But he added that China had more room to ease its tight monetary policy to boost a slowing domestic economy as inflation was 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 the nation’s inflation slowed sharply in October, with the consumer price index rising 5.5 percent 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 in the statement.
China’s economic growth eased to 9.1 percent in the third quarter from 9.5 percent in the second quarter, as government efforts to tame inflation and economic turbulence in Europe and the United States curbed activity.
Wang warned at the weekend that China needed 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 state 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 would 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,” hesaid.
China’s central bank has said in recent weeks it aims to tweak monetary policy by funding sectors in need, such as small enterprises and low-cost housing.
Chinese stocks initially reacted with alarm to the latest PMI, falling almost 1 percent.
By the end of Wednesday’s trading, major benchmarks in Shanghai and Shenzhen declined. In Hong Kong, the Hang Seng Index lost more than 2 percent.
I wrote an article last week (if I remember it correctly) about China’s policy that might backfire them if the country don’t take a greater, careful measure on its bank’s reserve requirement ratio. And now that the move worked out pretty well, soon enough they will need to release the money by lowering the reserve requirement ratio, in which, it might come as a shock as they are planning to bolster the domestic consumption. Inflation might once again go up and bubble might appears, though these 2 are the least we hope to happen.
What do you see on China’s economy next year. Will they take over US’s predicate of the world’s biggest economy by next year? Share your thoughts!
Just a short update on Groupon’s share price (since I posted it yesterday, I don’t feel good if I don’t let you know this one), the price now has dropped to $16.96, and it is $3.04 below IPO’s price. Signal to buy? or is it gonna fall further?