China’s factory output remains subdued

Posted on September 20, 2012

Chinese industrial activity has remained subdued in September but shown some signs of stabilising at a weak level, according to a widely watched survey published on Thursday.

The HSBC flash China purchasing managers’ index, the earliest of the economy’s monthly indicators, inched up to 47.8 in September from 47.6 in August.

    However, it was still below the 50 line, pointing to a contraction and reinforcing market expectations that the Chinese economy in on track to slow further in the third quarter from its 7.6 per cent growth rate recorded in the second quarter, which was already the slowest pace in three years.

    “China’s manufacturing growth is still slowing, but the pace of slowdown is stabilising. Manufacturing activities remain lacklustre, thanks to weak new business flows and a longer-than-expected destocking process,” said Qu Hongbin, an economist with HSBC.

    A PMI sub-index measuring output fell to its lowest in 10 months, but gauges of new orders, export orders and backlogs of work all ticked up, tentative signs that conditions in the manufacturing sector are at least not deteriorating any further.

    The Chinese government has started approving more investment projects in recent months, which some analysts believe will support economic growth later in the year. But at the same time, the central bank has made only minor moves to loosen monetary policy and the government has held back from deploying large-scale stimulus as it did in 2008 when the global financial crisis erupted.

    Many observers believe that more decisive moves on the economy will have to wait until after China’s once-in-a-decade leadership handover, which is set to take place in October.

    “The recovery of the manufacturing sector is clearly slow and difficult, without any sizeable easing from Beijing,” said Wei Yao, an economist with Société Générale.

    She noted that a positive sign could be seen in a narrower gap between finished goods inventories and new orders, which fell to 3.4 points from 8 points. This gap is seen as an important leading indicator of manufacturing activity, reflecting the extent to which companies must rely on new production to fill orders.

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