Chinese manufacturing contracts for eleventh month in September

Date: Sunday 30 Sep 2012

The Chinese manufacturing sector purchasing managers’ index (PMI) from HSBC Holdings and Markit Economics was at 47.9 for September, from 47.6 in August and after a preliminary reading of 47.8.

This as export orders declined at the fastest pace in 42 months and manufacturing output and input prices continued to decline, with employee numbers decreasing for a seventh straight month.

The above report comes ahead of the official PMI which may add to evidence that the Chinese economy has continued to gradually slow for a seventh quarter.

In the second quarter economic activity in the Asian giant slowed to a 7.6% year-on-year pace and it is expected to do so again this quarter, to 7.4%.

Some observers believe that the government is attempting to buttress the economy while at the same time avoiding rekindling run-away house prices. Likewise, economic authorities are widely expected to re-focus on economic policy when the once-in-a-decade hand-over of power that begins this November has concluded.

It is against that backdrop that investors seem to have interpreted news, just last week, that the People’s Bank of China injected record funds into the financial system to ease a cash squeeze before a week-long holiday. Mainland Chinese markets will be closed through Oct. 7th.

Interestingly, while some forecasters believe that the economy will trough in the last quarter of the year, some observers suggest that authorities misjudged the severity of the global slowdown.

On the other hand, there are those who believe that Beijing is attempting to allow the economy to ease back into what some now estimate is a slightly lower potential growth rate.

In any case, the fact remains that exports generated 31% of GDP in 2011, in turn supporting an estimated 200m jobs -a quarter of the country's workforce. That means, it is thought, that economic planners are wary of letting the slowdown proceed too far. So far, however, employment has yet to slacken, which some argue explains China´s slow reaction to events.

Lastly, Markit said it detected some signs of stabilization in manufacturing activity in September, as backlogs of work remained steady for 77% of respondents and the rate of job cuts reported was relatively modest, with nearly 85% of survey respondents indicating no change in employment levels on the previous month.

AB

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