China’s Manufacturing Contracts by Record on Exports (Update3)
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By Nipa Piboontanasawat
Dec. 1 (Bloomberg) -- China’s manufacturing shrank by the most on record and export orders plunged, adding to evidence that recessions in the U.S., Europe and Japan are dragging down the world’s fastest-growing major economy.
The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e- mailed statement. A second PMI, released by CLSA Asia-Pacific Markets, also showed a record contraction.
Export orders, output and new orders all shrank by the most since the surveys began as the global financial crisis sapped demand for the nation’s toys, textiles and computers. The CSI 300 Index of stocks has fallen 68 percent from a record in October last year and President Hu Jintao describes the economic situation as a test of the Communist Party’s ability to govern.
“Another grim month for China manufacturing,” said Eric Fishwick, the head of economic research at CLSA. “Export orders will weaken further and we expect further cuts in production and employment.”
The yuan fell the most since a fixed exchange rate ended in 2005, sliding 0.7 percent to close at 6.8848 a dollar, as the government sought to help exporters. The CSI 300 rose 1.9 percent on a government plan to boost consumer spending.
The government-backed PMI started in 2005, the CLSA study in 2004.
Deepening Slowdown
The government last month announced a $586 billion stimulus package and the biggest interest-rate cut in 11 years to revive the economy and counter the risk of spiraling unemployment and social unrest. The key one-year lending rate fell 108 basis points to 5.58 percent.
“Dismal PMI calls for more immediate policy help” was the heading on a Citigroup Inc. report today.
The figures suggest that export growth may decline sharply and industrial output may fall, said Ken Peng, a Shanghai-based economist for Citigroup. He expects a 54 basis-point rate cut before the end of the year, along with more speculation that the yuan is set for “large-scale depreciation.”
A weaker currency helps exporters by keeping down the prices of their goods in overseas markets.
China’s economy, the world’s fourth largest, expanded 9 percent in the third quarter from a year earlier, the slowest pace since 2003. The nation is very exposed to the global crisis, President Hu said Nov. 29.
Export Orders, Output
An export order index dropped to 29 in November from 41.4 in October, the government-backed survey showed. A reading above 50 reflects an expansion, below 50 a contraction.
The output index fell to 35.5 from 44.3, while the index of new orders dropped to 32.3 from 41.7.
Fired workers seeking more compensation from a toy factory in Guangdong province clashed violently with police on Nov. 25.
“It’s a very challenging time for policy makers -- they definitely need to do more in terms of fiscal and monetary stimulus,” said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. “There will be more aggressive interest-rate cuts.”
A slump in property sales and building work is also undermining growth. Construction of homes, offices and factories contracted at least 16.6 percent in October after a 32.5 percent expansion a year earlier, according to Macquarie Securities Ltd.
Slowdown ‘Getting Worse’
Baosteel Group Corp., China’s biggest steelmaker, is facing its “most difficult” period since the company was founded 30 years ago as output, sales and profit plunge, an executive said last month.
“The slowdown of the Chinese economy is getting worse,” Zhang Liqun, a senior research fellow at the State Council’s Development Research Center, said in a statement today. Government efforts to revive growth “still need some time to show their full effect, which will be after spring 2009,” Zhang said.
The World Bank slashed last week its growth forecast for China to 7.5 percent in 2009 from a 9.2 percent estimate in June. That would be the weakest pace since 1990.
The government-backed Purchasing Managers’ Index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics.
The survey tracks changes in output, new orders, employment, inventories and prices.
To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net
Last Updated: December 1, 2008 05:37 EST
