Index shows Chinese manufacturing activity in February shrunk at fastest pace in four years

AFP-JIJI

Manufacturing activity in China shrank at its fastest rate in four years in February, government data showed Tuesday, a fresh sign of sustained weakness in the world’s second-largest economy.

The official Purchasing Managers’ Index, which tracks activity in factories and workshops, fell to 49.0 last month, figures from the National Bureau of Statistics showed.

It was the lowest figure since 49.0 in November 2011, and was below the median forecast of 49.4 in a survey of economists.

A reading above 50 signals expanding activity in the vital sector, while anything below indicates contraction, and investors watch the index closely as the first available official indicator of the country’s economic health each month.

It was the seventh consecutive month that the official index showed contraction — the longest such series on record.

The figures came only hours after the central People’s Bank of China cut the amount banks must hold in reserve, in Beijing’s latest attempt to tackle slowing growth.

It trimmed the so-called reserve requirement ratio for financial institutions by 0.50 percentage points, freeing up more funds for them to lend.

China’s economy, a vital driver of global expansion, grew 6.9 percent last year, its weakest rate in a quarter of a century.

China’s leaders — who targeted growth of “about 7 percent” — are looking to transform the economy away from the investment and exports of the past to one more oriented toward domestic consumption, but the transition is proving bumpy, and the growth slowdown has alarmed investors worldwide.

Tuesday’s figures showed market demand “continued to fall” in February as the new orders subindex slipped to 48.6 from 49.5 in January, while employment worsened with the jobs indicator falling by 0.2 points to 47.6.

The private Caixin Purchasing Managers’ Index, which has a greater emphasis on smaller firms, came in at 48.0 for February, the lowest in five months, the Chinese financial magazine said in a joint statement issued with data compiler Markit.

“The index readings for all key categories including output, new orders and employment signaled that conditions worsened, in line with signs that the economy’s road to stability remains bumpy,” He Fan, an economist at Caixin Insight Group, said in the statement.

He urged policymakers to adopt “moderate stimulus policies” and give stronger support to the economy to “prevent it from falling off a cliff.”

But investors took the figures in their stride, with the benchmark Shanghai Composite Index slipping 0.25 percent in morning trade, while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, edged up 0.06 percent.

  • Buck

    Chinese manufacturing is weakening because many companies are pulling out and placing their orders in other countries with lower labor cost. However, the Chinese domestic consumer will still be a powerful buyer into the near future. Apple Inc. is still making a large profits in China selling smartphones while demand as shrunk elsewhere. The same can be said for other companies who are finding week demand in Europe and North America but remain profitable selling in China. There are still numerous
    2nd and 3rd tier cities with large populations that will drive demand. But we can say farewell to double digit GDP growth.

  • Buck

    Chinese manufacturing is weakening because many companies are pulling out and placing their orders in other countries with lower labor cost. However, the Chinese domestic consumer will still be a powerful buyer into the near future. Apple Inc. is still making a large profits in China selling smartphones while demand as shrunk elsewhere. The same can be said for other companies who are finding week demand in Europe and North America but remain profitable selling in China. There are still numerous
    2nd and 3rd tier cities with large populations that will drive demand. But we can say farewell to double digit GDP growth.