China Manufacturing May Shrink for Seventh Month - Bloomberg

By Bloomberg News - 2012-05-24T02:52:52Z

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China Manufacturing May Shrink for Seventh Month

A workers at the Quanli Garment Factory in Pinghu, Zhejiang Province, China.

A workers at the Quanli Garment Factory in Pinghu, Zhejiang Province, China. Photographer: Qilai Shen/Bloomberg

China’s manufacturing may shrink for a seventh month in May, a private survey showed, reinforcing the need for stimulus as Premier Wen Jiabao accelerates a shift in policy to support growth.

The 48.7 preliminary reading for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today compares with a final 49.3 for April. If confirmed on June 1, it would mark the longest run of below-50 readings since the global financial crisis.

Today’s report, along with worse-than-forecast data from Japan and Taiwan yesterday, add to concerns that growth in Asia is in danger as the world grapples with the threat of Greece’s exit from the euro. China will increase the intensity of policy “fine-tuning” amid rising “downside risks” facing the economy, the State Council, or Cabinet, said yesterday.

“This calls for more aggressive policy easing, as inflation continues to slow,” Qu Hongbin, Hong Kong-based chief China economist for HSBC, said in a statement. “Beijing policy makers have been and will step up easing efforts to stabilize growth, as indicated by a slew of measures to boost liquidity, public housing and infrastructure investment and consumption.”

The yuan weakened against the dollar for a second day, dropping 0.1 percent to 6.3390 at 10:40 a.m. in Shanghai.

The manufacturing index stayed below 50 for eight months through March 2009.

‘Proactively’ Expand Demand

The government “must proactively take policies and measures to expand demand and to create a favorable policy environment for stable and relatively fast economic growth,” according to a statement on its website yesterday summarizing a meeting of the State Council.

Leaders pledged to maintain a “prudent” monetary policy while also increasing the degree of “fine-tuning” as the economy faces “increasing pressure of a downward movement,” according to the statement.

The comments build on Wen’s remarks published May 20 that policy makers should “put stabilizing growth in a more important position.”

The State Council meeting “confirms stimulus will come,” Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., said in a note yesterday. Implementation of policies will happen in June and will “secure growth” in the second half of the year, he said.

Shibor Drops

China’s banks can borrow from one another at the lowest interest rates in 13 months as the economic slowdown stifles demand for loans, leaving lenders flush with cash. The three- month Shanghai interbank offered rate has fallen every day since March 27, sliding in that time to 4.33 percent yesterday from 4.95 percent, according to data compiled by Bloomberg.

Today’s preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies, according to HSBC.

Chinese authorities “should speed up the implementation of key infrastructure projects” if growth keeps weakening in the second quarter, the Organization for Economic Cooperation and Development said in a semi-annual report on the global economy released this week.

The OECD said Europe’s debt crisis risks spiraling and seriously damaging the world economy. The group pared its 2012 China growth forecast to 8.2 percent from 8.5 percent, joining financial institutions including Morgan Stanley and Goldman Sachs Group Inc. that cut estimates this month.

“As long as the easing measures filter through, China will secure a soft landing in the coming quarters,” HSBC’s Qu said.

China’s economy will expand 7.9 percent this quarter, according to a Bloomberg News survey May 14-15. That would be the sixth quarterly deceleration after an 8.1 percent pace in the first three months of this year.

Aluminum Corp. of China Ltd. swung to a loss in the first quarter and may be unprofitable in the first half because of weak prices and higher fuel costs, the nation’s biggest producer of the metal said in a Shanghai Stock Exchange filing last month.

--Zheng Lifei. With assistance from Sunil Jagtiani in New Delhi. Editors: Nerys Avery, Scott Lanman

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net