PMI decline reflects step back in sector's advances

PUBLISHED : Saturday, 02 June, 2012, 12:00am
UPDATED : Saturday, 02 June, 2012, 12:00am
 

The recent improvement in the mainland manufacturing sector backpedalled unexpectedly last month, strengthening the argument for immediate stimulus measures.

The purchasing managers' index (PMI), compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, declined to 50.4 last month and edged closer to contraction territory of below 50. Any reading above 50 means expansion.

The slowdown, which included everything from output to delivery time, was worse than economists' consensus of 52 and April's 53.3. Last month's PMI had the weakest reading since January.

Another set of PMI data, gauged by HSBC/Markit Economics, sank to 48.4 last month from 49.3, dragged down by contraction in new orders and output.

Economists said the two sets of PMI figures underscored a deepening slowdown in the mainland economy and weaknesses in domestic demand, which added to the urgency of stimulus measures if the central government wanted to meet its 7.5 per cent economic growth target this year.

'It reflects that economic growth is quickly decelerating,' Mizuho Securities' Shen Jianguang said yesterday. 'More stimulus could be in the pipeline, which will kick into effect in coming months.'

Shen expected that the recent disappointing performance in industrial production, consumption, industrial profit, power consumption and trade was likely to spill into this month.

The official PMI surveys 820 manufacturers in 21 industries across the mainland every month, whereas the HSBC/Markit PMI polls about 400, mostly in the eastern costal region.

Premier Wen Jiabao said two weeks ago that the nation would place more priority on stabilising economic growth while fine-tuning further macro economic policy in accordance with the latest global economic conditions.

The slowdown in China's PMI affected early European stock trading, contributing to a 2.3 per cent slide in the DAX Index in Frankfurt and a 1.3 per cent fall in the CAC 40 in Paris, where investors had already been hit by data released yesterday showing that euro-area manufacturing output contracted for a tenth month in May.

While playing down any plans to introduce a multi-trillion yuan stimulus package, the State Council on Wednesday approved a plan to step up 'support' of seven industries. They include new energy, environmental protection, next-generation information technology, biotechnology, high-end manufacturing, new materials and environmentally friendly vehicles.

Daiwa Capital Markets chief economist Sun Mingchun anticipated a cut of 50 basis points in the reserve that banks must set aside when lending, or the reserve requirement ratio, this month.

Sun called for a loosening of monetary measures to pump liquidity into the property sector and local governments so that incomplete projects could be finished.

Export-oriented economies such as India, Indonesia and South Korea also saw their manufacturing PMIs weaken in May. Australia's PMI also contracted sharply. Brazil cut interest rates on Wednesday by a 0.5 percentage point to stimulate growth.

820

The number of manufacturers in21 industries across the mainland surveyed monthly by the China Federation of Logistics and Purchasing

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