Bloomberg Beijing
CHINA’S manufacturing sector activity expanded at a slower pace last month, joining weaker-than-anticipated credit, production and investment data in suggesting the economy is losing momentum.
The purchasing managers’ index (PMI) was at 51.1 points for August, the National Bureau of Statistics and China Federation of Logistics and Purchasing (CFLP) said yesterday, missing the median 51.2 estimate in a survey.
The final reading of a separate manufacturing gauge issued by HSBC Holdings and Markit Economics was 50.2. Both readings dropped from 51.7 in July but remain above 50, indicating expansion.
A pullback in manufacturing, coming as the property market slumps, adds pressure on the government to step up efforts to meet its expansion target of 7.5 percent this year.
More stimulus measures would be announced in the next few weeks, Lu Ting, Bank of America’s head of greater China economics, said.
“The two PMIs show that the recovery is relatively weak and choppy,” Lu said. Stimulus might include a greater re-lending quota from the central bank, while the government had “pretty firm confidence” that it would keep the economy stable, he said.
The MSCI Asia Pacific index of stocks rose 0.2 percent by 4.08pm in Hong Kong on speculation China will take steps to bolster the economy. The Shanghai Composite index was up 0.8 percent.
“There’s certain downward pressure in the current economic environment,” Zhang Liqun, a researcher with the State Council’s Development Research Centre, said in a CFLP statement. “Future industrial production growth may continue to drop slightly.”
The official PMI is based on responses to surveys sent to purchasing executives at 3 000 companies. It typically registers a higher reading than the HSBC survey, which is based on responses from purchasing managers at more than 420 businesses and is weighted toward smaller private companies.
While the official PMI for big enterprises remained at a level showing expansion, the PMI for medium-sized enterprises dropped to 49.9, and for small businesses it tumbled to 49.1. The output subindex declined 1 point to 53.2, while the reading for new export orders retreated 1.1 points to 50, the dividing line between expansion and contraction.
“This official PMI is a bellwether of China’s largest and listed companies, so it suggests that they are still moving at a steady pace,” Liu Li-Gang, the chief greater China economist at Australia & New Zealand Banking Group, said. China’s third-quarter growth tended to be slower, and the level of lending in August would be “very critical” for the economy.
New credit fell in July after a June surge, previously released data showed, suggesting People’s Bank of China governor Zhou Xiaochuan will need to loosen policy to sustain growth if lending continues to dry up.
“We expect the government to interpret such an outlook as challenging its growth target and to take more… significant, measures to support growth,” Louis Kuijs, Royal Bank of Scotland’s chief greater China economist, said yesterday.
The central bank recently granted a 20 billion yuan (R35bn) re-lending quota to some regional bank branches to support agriculture, according to a statement on its website last week.
The central bank also said it would cut interest rates by 100 basis points on re-lending to some rural financial institutions meeting certain criteria in poor areas.