Manufacturing slows as demand for goods falls
By Wang Yanlin |
November 24, 2011, Thursday
|
Print Edition
Print Edition
China's manufacturing activities may weaken sharply and return to contraction this month because of a reduction in demand at home and abroad, a preliminary reading for the HSBC Purchasing Managers' Index showed yesterday.
The HSBC Flash PMI, the earliest available indicator of industrial sector operating conditions, fell to a 32-month low of 48 in November, down from October's final reading of 51. It settled at 49.9 in September.
A reading below 50 means contraction.
"The dipping headline manufacturing PMI implies that industrial production is likely to slow further to around 12 percent year on year in the coming months," said Qu Hongbin, chief economist for China at HSBC. "It is mainly due to cooling domestic demand while external demand is set to weaken despite still resilient new export orders."
Qu said inflation was likely to decelerate faster than expected, leaving more room for China to step up selective easing measures which should filter through to keep China on track for a soft landing.
Kevin Lai, senior economist at Daiwa in Hong Kong, told Reuters the PMI data showed China's industrial production had started to contract on a month-on-month basis.
"We see a 25 percent probability of a hard landing in the first quarter of next year," Lai said, meaning economic growth of less than 8 percent.
The Chinese property market is also coming off the boil, a factor HSBC said had weighed on the PMI. Average home prices were lower in October for the first time this year and sales fell.
Most analysts say China will keep to a policy the government has dubbed "fine tuning."
"It's not like 2008," Ting Lu of Bank of America/Merrill Lynch said. "This is not as bad. There's no need for China to be in a hurry to roll out measures. The central bank needs to become more flexible and watch the unfolding crisis. It's not the time for them to change policy stance."
Still, like some other analysts, Tim Condon, head of Asia research at ING in Singapore, said the selective measures could spread to broader measures in the months ahead as the economy weakens, so a cut in nationwide bank reserve requirements, currently a record high of 21.5 percent for big banks, may be on the cards in the next three months.
Policymakers will be wary of easing policy too quickly for fear of reigniting inflation which dropped from a three-year high in July of 6.5 percent to 5.5 percent in October.
In October, the official Purchasing Managers' Index, compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, stood at 50.4, the lowest in almost three years.
The data for November will be released next Thursday.
The HSBC Flash PMI, the earliest available indicator of industrial sector operating conditions, fell to a 32-month low of 48 in November, down from October's final reading of 51. It settled at 49.9 in September.
A reading below 50 means contraction.
"The dipping headline manufacturing PMI implies that industrial production is likely to slow further to around 12 percent year on year in the coming months," said Qu Hongbin, chief economist for China at HSBC. "It is mainly due to cooling domestic demand while external demand is set to weaken despite still resilient new export orders."
Qu said inflation was likely to decelerate faster than expected, leaving more room for China to step up selective easing measures which should filter through to keep China on track for a soft landing.
Kevin Lai, senior economist at Daiwa in Hong Kong, told Reuters the PMI data showed China's industrial production had started to contract on a month-on-month basis.
"We see a 25 percent probability of a hard landing in the first quarter of next year," Lai said, meaning economic growth of less than 8 percent.
The Chinese property market is also coming off the boil, a factor HSBC said had weighed on the PMI. Average home prices were lower in October for the first time this year and sales fell.
Most analysts say China will keep to a policy the government has dubbed "fine tuning."
"It's not like 2008," Ting Lu of Bank of America/Merrill Lynch said. "This is not as bad. There's no need for China to be in a hurry to roll out measures. The central bank needs to become more flexible and watch the unfolding crisis. It's not the time for them to change policy stance."
Still, like some other analysts, Tim Condon, head of Asia research at ING in Singapore, said the selective measures could spread to broader measures in the months ahead as the economy weakens, so a cut in nationwide bank reserve requirements, currently a record high of 21.5 percent for big banks, may be on the cards in the next three months.
Policymakers will be wary of easing policy too quickly for fear of reigniting inflation which dropped from a three-year high in July of 6.5 percent to 5.5 percent in October.
In October, the official Purchasing Managers' Index, compiled by the China Federation of Logistics and Purchasing on behalf of the National Bureau of Statistics, stood at 50.4, the lowest in almost three years.
The data for November will be released next Thursday.
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