Chinese manufacturing weaker

THERE was more evidence of weakness in China’s huge manufacturing sector in December.

THERE was more evidence of weakness in China’s huge manufacturing sector in December, a soft end to the year that suggests the country will probably miss its 2014 economic growth target.

The government’s official manufacturing Purchasing Managers’ Index, a gauge of conditions in industry, slipped to 50.1 in December from 50.3 a month earlier, the National Bureau of Statistics said, the lowest reading in a year and a half. Any number above 50 indicates expansion, but the pace of growth is now marginal.

A competing index released last week by HSBC and research firm Markit dropped to 49.6 in December from 50.0 the previous month.

“China’s manufacturing sector, especially those industries related to the property market, is still struggling,” said Li-Gang Liu, an economist at ANZ. “China is entering a ‘new normal’ economy.”

There was a small recovery in export orders, according to the official PMI, with that subindex rising to 49.1 from 48.4, but new orders overall fell to 52.2 from 52.5. That suggests domestic demand is softening. A stalling housing market has had a knock-on effect on manufacturers in many industries, from construction machinery to furniture.

Both PMIs also indicated that wholesale prices for raw materials and manufactured goods continued to fall, with the official PMI sub-index for raw material prices dropping to 43.2, the lowest since 2014. China’s manufacturing sector has suffered from deflation for almost three years, because of a combination of excess factory capacity at home and falling prices for raw materials on global markets. While companies benefit from lower input prices, deflation also makes it harder for them to repay loans.

“We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months,” said Hongbin Qu, HSBC’s chief economist for China. China’s central bank cut benchmark interest rates by a quarter of a percentage point to 2.75 per cent in November, the first interest rate move since 2012.

Despite this and other small stimulus measures, including a pick-up in the pace of spending on railway construction, most economists believe China will fall short of its 7.5 per cent economic growth target for 2014. Growth in the third quarter came in modestly below target at 7.3 per cent.

Officials have stressed that the target is an approximate one, and they will tolerate slightly slower growth without resorting to the large-scale stimulus that China enacted in response to 2008 financial crisis.

The growth figures for 2014 are scheduled to be released on January 20, with this year’s target to be published in March. If China fails to achieve its growth target, it would be the first in more than a decade and could prompt policy makers to lower the target for 2015, economists said.