China Manufacturing Unexpectedly Contracts as Orders Drop - Bloomberg

By Bloomberg News - 2012-09-01T01:10:54Z

China’s manufacturing shrank for the first time in nine months, an official survey showed, signaling the growth slowdown in the world’s second-biggest economy may be deepening.

The Purchasing Managers Index fell to 49.2 in August from 50.1 in July, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with the median forecast in a Bloomberg News survey for a reading of 50, which marks the dividing line between expansion and contraction.

Today’s data increase pressure on Premier Wen Jiabao to step up stimulus to reverse a growth slowdown that may extend into a seventh quarter, after export gains stalled in July and new lending declined. Stabilizing expansion is the key task for the economy in the second half, Wen said last month.

“Downside risks to economic growth are increasing,” Chang Jian, a Hong Kong-based economist at Barclays Plc who formerly worked for the World Bank, said before the release. “Slowing external demand and policy inaction may cause growth to slide further.”

The government may further reduce interest rates and roll out more fiscal support including investment spending and tax cuts to stabilize growth at 7.5 percent to 8 percent this year, Chang said.

Stocks Slump

Estimates from 25 economists for the gauge ranged from 49.2 to 50.5. The index is based on responses from purchasing managers at 820 companies in 31 industries.

The benchmark Shanghai Composite Index (SHCOMP) fell 0.3 percent yesterday to the lowest level since February 2009, capping a fourth month of losses, after declining earnings from companies including Sany Heavy Industry Co. underscored the impact of the nation’s economic slowdown.

The yuan strengthened for the fifth week, the longest winning streak since April 2011, on bets policy makers will act to revive the economy. The currency has lost about 0.9 against the U.S. dollar this year after strengthening 4.7 percent in 2011.

China’s gross domestic product expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years, as Europe’s debt crisis crimped exports and property curbs at home damped domestic demand. Estimates for growth this quarter ranged from 7.4 percent to 8.3 percent in a Bloomberg News survey last month.

Stabilizing Growth

The central bank cut interest rates in June and July and lowered the reserve-requirement ratio for banks three times starting in November as part of the government’s efforts to support lending and boost growth.

The difficulties in stabilizing growth are “relatively large,” the official Xinhua News Agency cited Wen as saying during an inspection tour to Guangdong province on Aug. 24 and 25. Wen called for extra measures to promote exports to meet the economic expansion target, according to Xinhua. The premier in March set a 7.5 percent growth goal for this year.

A separate purchasing managers index released by HSBC Holdings Plc and Markit Economics indicated that manufacturing may have contracted for a 10th month in August, according to a preliminary reading on Aug. 23. The final number for the survey, which covers more than 420 companies and is weighted more toward smaller businesses, is due Sept. 3.

Manufacturers’ earnings are falling as the slowing economy curbs demand. Chinese industrial companies’ profits declined in July by the most this year, a government report showed Aug. 27.

Anhui Conch Cement Co., China’s biggest maker of the material, said Aug. 14 that first-half profit slumped 51 percent as demand was damped by the government’s property curbs. Xinjiang Goldwind Science & Technology Co., China’s second- biggest maker of wind turbines, said Aug. 24 that its first-half profit dropped 83 percent as competition intensified and market growth slowed.

--Zheng Lifei. With assistance from Ailing Tan in Singapore and Penny Peng in Beijing. Editors: Scott Lanman, Nerys Avery

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