Manufacturing shrinks, with PMI at 7-month low

PUBLISHED : Friday, 22 June, 2012, 12:00am
UPDATED : Friday, 22 June, 2012, 12:00am


The country's manufacturing activity further deteriorated this month, prompting analysts to believe the government will launch stimulatory measures, such as fast-tracking investment projects.

The HSBC Flash China Manufacturing Purchasing Managers' Index (PMI) fell to a seven-month low of 48.1, based on data collected from June 11 to 19. The HSBC China Manufacturing PMI was 48.4 in May. A PMI below 50 indicates contracting manufacturing activity, while a reading above 50 indicates expansion.

The Shanghai Stock Exchange Composite Index fell 1.4 per cent to 2,260.88 yesterday, while the Hang Seng Index fell 253.78 points, or 1.3 per cent, to 19,265.07.

'China's manufacturing sector continued to slow in June,' said HSBC's China chief economist, Qu Hongbin, said. 'Exports are likely to decelerate in the coming months. The sharp fall in prices and moderation of new orders suggest weak domestic demand, posing destocking pressures for Chinese manufacturers. All these will likely weigh on the jobs market. As such, we expect more decisive policy stimulus to reverse the growth slowdown.'

'The government will have more focus on investment in infrastructure and manufacturing to maintain economic growth,' said Tse Kwok Leung, head of economic research at Bank of China (Hong Kong).

The economy had hit the bottom in the second quarter and would rebound in the third, Tse predicted.

'Growth can still be 8 per cent for the whole of 2012. In this global economic environment, it will be very good to maintain an 8 per cent growth rate,' he said.

In another sign of the economy weakening, the air cargo throughput of Shanghai International Airport (the Shanghai-listed operator of Shanghai's airports) fell 3.77 per cent to 247,900 tonnes in May, of which domestic air cargo throughput fell 10.2 per cent to 26,400 tonnes and international air cargo dropped 3.01 per cent to 190,100 tonnes. In May, the growth rate of the country's cement output was 4.3 per cent, 14.9 percentage points slower than the same month last year, according to the National Development and Reform Commission (NDRC).

'The poor PMI figures mean exports will be even weaker in the next few months,' said Sunny Ho Lap-kee, executive director of the Hong Kong Shippers' Council. 'The weak markets in the US and Europe will likely [continue]. Hong Kong shippers do not see strong chances of recovery in Europe and the US.'

The mainland's domestic demand would depend on government policy, Ho said.

'The Chinese government should relax its monetary tightening a bit,' he said.

A report by Charles Dumas, the chairman of British think-tank Lombard Street Research, said: '[Mainland] retail sales seem subdued, and the growth of private non-financial credit has fallen back to a 12 per cent annual rate. Broad money is growing at about 13 per cent, close to all-time lows.'

Chinese companies were cutting costs, which was showing up in stagnating or declining mainland imports of steel, copper, aluminium and plastics, it said.

In May, China's steel production grew at an annual rate of 6.3 per cent, 4.3 percentage points lower than the same month last year, NDRC data shows.