Policy easing urged as factories struggle

PUBLISHED : Friday, 25 May, 2012, 12:00am
UPDATED : Friday, 25 May, 2012, 12:00am


The recent contraction in China's manufacturing looks set to deepen this month, putting new pressure on growth stimulus measures.

The HSBC/Markit flash purchasing managers' index (PMI), a monthly survey released a week before the official data due on June 1, fell to 48.7 this month from 49.3 in April. Any reading below 50 means a decline in manufacturing while above means expansion.

The findings, based on a survey of 420 mainland manufacturers, add to increasing bad news about the manufacturing sector after trade growth tapered off far below economists' forecasts.

Many economists called for a loosening of monetary and fiscal policies. 'Manufacturing activities softened again in May, reflecting the deteriorating export situation,' HSBC chief economist Qu Hongbin said yesterday.

'This calls for more aggressive policy easing, as inflation continues to slow.'

Qu remains confident that the mainland can meet its economic growth target of 7.5 per cent this year as soon as the impact of potential easing measures filters through.

He expects a lowering in the amount banks must leave aside when lending, an increased supply of public housing, a beefing up of infrastructure investments and stimulation of domestic demand. Some economists also expect a cut in interest rates.

Premier Wen Jiabao this week stressed the importance of maintaining stable growth and promised that macro-economic policy will be further fine-tuned in accordance with the latest economic situations.

The World Bank on Wednesday cut its forecast on China's economic growth by 0.2 percentage points to 8.2 per cent this year and urged the nation to unleash measures for growth.

The lender anticipates the nation's exports will be hit hard by the euro-zone economic turmoil.

Manufacturers in the Pearl River Delta complained that sales were down 20 per cent in the first five months of this year, according to a Federation of Hong Kong Industries survey conducted earlier this month.

They were hit by rising wage costs as well as shortages of electricity and labour.