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September 2, 2014

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Slowdown in manufacturing growth

CHINA’S manufacturing sector grew at a slower pace last month for the first time since February, indicating a faltering recovery in the world’s second-largest economy.

The official Purchasing Managers’ Index, a comprehensive gauge of operating conditions in large industrial companies, was 51.1 in August, down from July’s 51.7, the China Federation of Logistics and Purchasing and the National Bureau of Statistics said yesterday.

A reading above 50 indicates expansion.

The figure for August pointed toward the first moderation after faster growth for five consecutive months, although it was still the second highest this year so far.

Zhao Qinghe, a researcher at the statistics bureau, said the performance in industrial companies remained stable in general. However, Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said the deceleration was faster than expected and broad-based.

The components showed that production declined 1 point from a month earlier to 53.2 in August, while new orders and new export orders dipped 1.1 points and 0.8 points respectively, suggesting a slowdown in demand from both home and abroad.

“As the risk of failing to deliver the growth target of 7.5 percent has heightened, the authorities will likely act again and launch more supportive policies,” Zhou said.

China’s economy showed signs of recovery in the second quarter after the government rolled out a set of targeted measures to bolster growth.

These included less reserve requirements for small banks, easing controls in the property market, increasing investment in railway construction, and cutting red tape.

In the first half, China’s gross domestic product expanded 7.4 percent, with the pace picking up to 7.5 percent in the second quarter from 7.4 percent in the first three months.

But the recovery seemed to be faltering in July as major activity data, including industrial production, investment, retail sales and lending, all grew at a slower pace.

Zhou said the current targeted monetary easing measures have not fundamentally arrested the slowdown, and a cut in the reserve requirements for large commercial banks will be needed to reduce China’s funding costs.

The moderation in manufacturing was also reflected in the HSBC Purchasing Managers’ Index, which tracks private and smaller industrial enterprises. It was 50.2 in August, down from July’s 51.7, HSBC Holdings plc and research firm Markit said yesterday.

This signaled only a fractional pace of improvement that was the weakest in three months, said Qu Hongbin, chief economist for China at HSBC.

“The economy still faces considerable downside risks in the second half of the year, which warrant further policy easing to ensure a steady growth recovery,” Qu said.

In July, the International Monetary Fund lowered its forecast of China’s economic growth this year to 7.4 percent, from a previous 7.5 percent.

It said China needed to address risks of declining efficiency of investment, a significant buildup of debt, income inequality and environmental costs, which may threaten growth prospects.




 

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