Output falls for 3rd month amid credit squeeze
China's manufacturing activity has shrunk for the third straight month under the weight of the nation's stringent monetary regime, which is expected to continue putting downward pressure on output.
The purchasing managers' index (PMI) compiled by HSBC-Markit was barely changed in the 'contraction territory' of 49.95 for September, versus 49.91 in August. The result was the lowest quarterly reading since the first quarter of 2009.
Economists blamed the contraction on the mainland's credit tightening and weakened global demand, and pointed out that lenders' hands were tied by stubbornly high inflation in consumer and property prices. Premier Wen Jiabao said yesterday that controlling inflation and regulating the real estate market would be priorities in the months ahead.
Economists said Wen's commitment, combined with a looming threat of a double-dip recession in Europe and the United States, meant there was only a slim chance of unwinding the mainland's monetary measures in the near term.
'The lagged effects of credit tightening will continue to cool industrial activity in the months ahead,' said HSBC chief economist Qu Hongbin.
But Qu, who is relatively more optimistic about the mainland's economic prospects, added: 'There remains little need to worry about a growth meltdown.'
The 430 manufacturers on the mainland surveyed for the PMI indicated that inflation in raw materials and factory-gate prices swelled further last month, with both only a touch below the index's long-term average.
Input prices inflated to a four-month high, while output prices reached a five-month peak.
UBS economist Wang Tao forecast that dwindling global demand and commodity prices could help ease the mainland's inflation problem in the fourth quarter.
However, she expected the mainland's export sector would be disappointing, and she downgraded her forecast for export growth by value in the fourth quarter to 5 per cent from 12 per cent, and to 6 per cent from 9 per cent by volume.
'The weakened global growth prospects might have further hurt consumer and corporate confidence. This will lead export growth to slow to single digits in the coming quarters, which will negatively affect manufacturing investment and consumption,' she said.