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October 2, 2014

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Home » Business » Manufacturing

Factory growth still cause for concern

GROWTH in China’s manufacturing sector continued to be weak in September, with activity in state-owned industrial companies seeing little improvement from the month before.

The official Purchasing Managers’ Index, measuring operating conditions in state-owned manufacturers, recorded 51.1 last month, the National Bureau of Statistics said yesterday, still in expansion but no improvement on August’s reading, the first moderation since February.

The data came a day after China cut mortgage rates for the first time since the 2008 global financial crisis to boost its flagging economy, and reinforced a view among analysts that sluggish domestic demand and a cooling property market were dragging on activity.

On Tuesday, the HSBC Purchasing Managers’ Index, weighted toward private and export-oriented manufacturers, posted 50.2 for September, also unchanged from August, which was a three-month low.

“The PMIs suggest that there is little improvement in growth momentum,” said Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd.

The components in the official PMI showed that new orders fell by 0.3 points from August to 52.2, while input prices eased 1.9 points to 47.7.

External demand remained resilient, with new export orders rising by 0.2 points to 50.2, and production up 0.4 points to 53.6.

Zhou said the current crackdown on shadow banking activities, continued weakness in the property market and rising credit risks in the commodity sector would continue to weigh on the economy.

“However, the Chinese authorities will remain proactive to arrest the slowing momentum,” Zhou said.

To arrest the economic cooldown, China‘s central bank and banking regulator relaxed lending rules for second-home buyers on Tuesday by giving them a 30 percent discount on mortgage rates and cutting their downpayment levels to 30 percent from 60-70 percent.

But some analysts warned that a glut of unsold or unoccupied homes could temper any rebound in China‘s housing market, which accounts for about 15 percent of the economy, Reuters reported. Others said it remained unclear if buyers would be persuaded by lower rates if they believed prices would continue to fall.

The sagging market has pushed the Chinese economy into a deeper funk in recent months as weak activity appeared to broaden across sectors.

Falling to 6-year lows

Factory output and a broad measure of credit supply both unexpectedly fell to 6-year lows in the summer. Profits at Chinese industrial firms fell 0.6 percent in August from a year ago, reversing from a near 14 percent rise the month before.

Yesterday’s official PMI showed factory employment shrank again in September, though the pace did not intensify, leaving the employment sub-index unchanged at 48.2.

China‘s government is aiming to grow the economy by around 7.5 percent this year, though the run of underwhelming data so far has led many analysts to predict growth will fall short of that target.

Some financial institutions have slashed their forecasts. UBS last week expected China’s GDP may expand 7.2 percent this year, and Goldman Sachs lowered its third and fourth quarter growth projection to 7.1 percent from the previous 7.3 and 7.2 percent, and said it expected a 7.3 percent increase for the whole year.

China’s economy had shown signs of recovery in the first half of the year with its gross domestic product expanding 7.5 percent in the second quarter, picking up from the pace of 7.4 percent in the first three months.




 

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