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China manufacturing reports second month of contraction

BEIJING -- China's manufacturing activity contracted for a second-straight month in September, according to official data released Monday, falling short of expectations for expansion.

The government's purchasing managers' index (PMI) stood at 49.8 in September, a modest improvement on 49.2 in August, according to the China Federation of Logistics and Purchasing and the National Bureau of Statistics.

A PMI reading above 50 indicates expansion, while one below that mark points to contraction. The result came in below the median forecast of 50.2 in a survey of 11 economists by Dow Jones Newswires.

China's manufacturing sector has struggled as the country's once red-hot economy negotiates a slump that began last year.

Both Europe and the United States are key Chinese trading partners and global woes surrounding the eurozone debt crisis, plus a weak U.S. economy still suffering from lackluster growth and high unemployment, have been drags on exports.

“The manufacturing side is still very weak,” independent economist Andy Xie said, pointing to sluggish exports as one reason.

An even more important factor, he said, was a major slump in China's property market that has hurt demand for building materials such as steel and cement.

“Most projects have been put on hold,” he said. “You go around the country you can see all the cranes standing there, not working.”

China's economic growth slowed to 7.6 percent in the three months through June from the same period the year before, the poorest result in three years since the height of the global financial crisis.

Various statistics for the third quarter, which ended Sunday, have been broadly disappointing, fostering expectations economic growth may have slowed further during the period.

Gross domestic product figures for the three months through September are scheduled to be released in mid-October.

Chinese authorities have expressed confidence they will achieve their 2012 growth target of 7.5 percent, though that would mark a sharp slowdown from the 9.3 percent reached last year and 2010's 10.4 percent.

They have taken steps this year to bolster the economy with two interest rate cuts in quick succession and by easing restrictions on how much money banks must keep on hand in an effort to boost lending and growth.

But so far the measures have had little impact. Analysts have been divided over prospects for more stimulus given fears that too much could prove harmful in the long term.

Political uncertainty ahead of a once-in-a-decade leadership change set to start at a key Communist Party congress now scheduled for November 8 has also been blamed for distracting officials from economic matters.

That could change after China on Friday announced the date for the meeting and took steps toward resolving a simmering political crisis involving former senior official Bo Xilai, now accused of corruption and other offences, by expelling him from the party.

Such moves suggest the party has reached agreement on which officials will occupy key posts in its most powerful body, said Bank of America Merrill Lynch economists Lu Ting and Larry Hu.

“With membership of the politburo standing committee likely settled, top politicians should re-focus on economic policy making,” they wrote in a comment Monday after the release of the PMI data.

The official PMI came on the heels of a closely watched private survey of China's manufacturing that also showed the sector still in contraction, but also slightly improved from the month before.

The final reading of the purchasing mangers' index released by British banking giant HSBC for September was 47.9, up from 47.6 in August, HSBC said Saturday. It marked the 11th straight month of contraction in that survey.

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