Manufacturing activity in China hit a three-year low in November, an industry survey showed yesterday, supporting the case for more accommodative policies as authorities seek to prop up growth in the world’s second largest economy.
China’s National Bureau of Statistics’ official Purchasing Managers’ Index (PMI) hit 49.6 in November, its lowest reading since August 2012 and down from the previous month’s reading of 49.8. This was below a Reuters poll forecast of 49.8 and marked the fourth straight month of contraction in the sector.
A reading below 50 points suggests a decline in activity on a monthly basis while a reading above signifies an expansion.
“With soft growth momentum and deflation pressures creeping up, we expect the authorities to further ease monetary policy and continue to implement an expansionary fiscal policy in order to prevent further slowdown of the economy in 2016,” Li-Gang Liu and Louis Lam, ANZ economists said in a research note released after the data.
Separately, the Caixin/Market China Manufacturing PMI edged up to 48.6 in November, beating market expectations of 48.3, which would have been unchanged from the previous month. The index has shown contraction for nine straight months.
The private sector Caixin survey focuses more on small-to-medium-sized private firms, which are showing more stress from the prolonged economic slowdown and high financing costs, while the official versions look more at larger, state-owned firms.
The official PMI’s sub-indexes showed widespread weakness in manufacturing with new orders - a proxy for domestic and foreign demand - down 0.5 points to 49.8 and exports contracting to 46.4 for the 14th straight month. Input prices declined 3.3 points to 41.1.
ANZ economists said this points to persistent deflation in upstream prices, which would add pressure to factory gate prices and industrial profits.
Service sector activity, which has helped offset the wider effects of weakness in manufacturing, improved with the official non-manufacturing PMI up half an index point to 53.6.