• Mon
  • Jul 28, 2014
  • Updated: 2:37pm
BusinessEconomy
CHINA

China's manufacturing activity shrinks for 11th consecutive month

Growth likely to remain tame heading into fourth quarter before improving as mainland's cooling measures take effect, say economists

PUBLISHED : Friday, 21 September, 2012, 12:00am
UPDATED : Friday, 21 September, 2012, 2:53am

Manufacturing activity on the mainland shrank for the 11th consecutive month this month, a survey showed yesterday. The fall was but less steep than last month, when the contraction was the sharpest in nine months,

Economists believe economic growth will remain subdued before showing improvement in the fourth quarter as the government's easing steps gradually take effect.

HSBC's preliminary purchasing managers' index, which tracks the mainland's manufacturing businesses, edged up to 47.8 in September from 47.6 in August as new orders continued to fall, albeit at a slower rate. Readings below 50 indicate a contraction.

"China's manufacturing growth is still slowing, but the pace of slowdown is stabilising," HSBC economists Sun Junwei and Qu Hongbin said.

The sluggish manufacturing data suggests industrial output growth will remain tame after hitting a 39-month low of 8.9 per cent last month, they said.

HSBC forecast growth in gross domestic product this quarter will likely "at best" stay similar to the second quarter's 7.6 per cent growth.

Capital Economics forecast a further slowdown in GDP growth to 7.1 per cent this quarter, citing weakness in property and trade.

The survey "provides reassurance that conditions in manufacturing are not deteriorating", it said. However, "a recovery is still not in sight".

The PMI data also showed unemployment may have risen while output and input prices declined. HSBC will release final PMI readings in about a week.

On October 1, the National Bureau of Statistics will release its survey results on manufacturing activity. The official PMI fell to 49.2 last month from 50.1 in July.

The Ministry of Commerce has warned that external demand may cool further.

The State Council has pledged to bolster trade using policies including accelerating tax rebates for exporters and broader coverage of credit insurance. The government also approved new infrastructure projects to drive investment. New lending rebounded modestly last month.

Premier Wen Jiabao also vowed to tap into the government's fiscal resources when needed to help stabilise growth.

The government has room for a fiscal deficit of almost 2 trillion yuan (HK$2.45 trillion) in the last four months of the year to support the economy, after recording a surplus of nearly 1 trillion yuan at the end of last month, HSBC said.

All these measures should lead to a "modest improvement in growth" from the fourth quarter onwards, the bank said.

Even so, economists say the move lack strong support from banks and will be less powerful than the 4 trillion yuan stimulus launched in late 2008 to combat the global financial crisis.

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