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backCHINAtalk May, 2012

China manufacturing shrinks again

China’s manufacturing activity contracted for the sixth straight month this month, HSBC said yesterday, bolstering the case for the government to give a boost to the world’s number two economy.

HSBC’s purchasing managers index (PMI) — which measures factory output — was 49.1 this month, up from 48.3 last month, the British banking giant said in a statement.

However, the reading remained below 50, indicating contraction in activity. A reading above 50 indicates expansion.

HSBC chief economist for China Qu Hongbin put the data in a positive light, saying government measures to spur the economy were having an impact.

“This suggests that the earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown,” he said in the statement.

“That said, the pace of both output and demand growth remains at a low level in an historical context and the job market is under pressure. This calls for additional easing measures in the coming months,” Qu said.

Other analysts echoed that view, saying the government would need to further ease monetary policy, most likely through a cut in reserve requirements for banks.

“The pick-up in PMI has reduced worries over China’s economic growth, but it will not affect the overall loosening trend for China’s monetary policy,” said You Hongye, an analyst at Essence Securities in Beijing.

The Chinese economy grew 8.1 percent in the first quarter of this year, its slowest pace in nearly three years, putting pressure on Beijing to loosen its monetary policy.

Beijing has cut bank reserve requirements twice since December last year, as policymakers aim to boost lending.

Chinese shares closed down 0.76 percent yesterday, as investors reacted to the PMI figure with disappointment, dealers said.

“Despite a mild improvement in April PMI, the reading is still in contraction, so it does not indicate a recovery in the domestic economy,” BOC International analyst Shen Jun said.

In a research report, securities house Nomura said China would boost spending on infrastructure and cut bank reserves as early as next month.

“We still expect monetary and fiscal policy to be loosened in Q2,” Nomura China chief economist Zhang Zhiwei said.

HSBC’s figures are typically more pessimistic than China’s official numbers. The official data for this month has not yet been released.

The HSBC survey puts more emphasis on smaller companies, which are suffering more in the economic downturn than state-owned giants.

The official Chinese government data released last month had shown manufacturing output rose to its highest level in a year in March, the fourth consecutive month that the official numbers indicated expansion.

China’s economy is widely expected to slow this year as woes in key export markets such as Europe and the US hit its overseas sales.

The government has set a target of 7.5 percent economic growth this year. China’s economy grew 9.2 percent last year and 10.4 percent in 2010.

Source: Taipei Times - GAI

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