China's PMI falls, adding to economic jitters ahead of annual NPC meeting

The purchasing managers’ index (PMI) tumbled to 50.2, the National Bureau of Statistics reported on its website

PUBLISHED : Saturday, 01 March, 2014, 11:11am
UPDATED : Sunday, 02 March, 2014, 5:36am

A gauge of mainland manufacturing fell to an eight-month low in February, adding to challenges for growth as Premier Li Keqiang prepares to map out the government's economic strategy to the nation's legislature.

The Purchasing Managers' Index was at 50.2, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. That compared with January's 50.5 reading. A number above 50 signals expansion.

The data underscore the challenges facing the government as it tries to sustain expansion above Li's 7 per cent bottom line while reining in credit and overcapacity. The yuan's biggest decline on record against the dollar last month may add to investor concerns that the economy is vulnerable to financial risks.

"The slowdown in manufacturing growth is due to a deceleration in investment, especially of credit-sensitive infrastructure and real-estate investment," said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong. "But there's no need to become overly concerned - the government has the policy space … to ensure its bottom line on growth this year while retaining financial stability."

The mainland's benchmark stock index slumped 2.7 per cent last week, the biggest drop in seven weeks, amid concerns economic expansion will ease as banks tame lending and a weaker yuan spurs capital outflows.

The yuan lost 1.3 per cent in February, the biggest monthly drop on record, fuelled by speculation the central bank will widen the currency's trading band against the US dollar to allow more volatility.

The premier will present his first annual work report to the National People's Congress on Wednesday, outlining plans for the economy after the Communist Party set out its reform blueprint in November. He will also announce a target for gross domestic product growth.

If the goal is unchanged from last year's 7.5 per cent, "the government will have to roll out pro-growth policies, which will then delay the long-awaited structural reforms", ANZ Banking Group economists led by Hong Kong-based Liu Li-gang said in a report. "While low interest rates could help [companies] and exporters, they could fuel the shadow banking activities again."