News & Reports News Year 2012 March , 2012 Decline in orders slows China's manufacturers

Decline in orders slows China's manufacturers

CHINA'S manufacturing activities contracted for the first time in almost three years last month due to dismal external demand, rising production costs and strict limits on money available for small firms.
The official Purchasing Managers' Index, which measures manufacturing activity, slipped from October's 50.4 to 49 in November, the lowest since March 2009, the China Federation of Logistics and Purchasing said yesterday.

A reading below 50 indicates contraction.The federation said the drop was led by declines in new orders and new export orders. The new export orders index fell to 45.6 from 48.6 in October, dragging the new orders index down to 47.8 from 50.5.
In addition, most producers of raw materials and downstream products reported contraction, while consumer goods manufacturers said conditions improved."It indicates the influence of rising production costs, which more affects producers of lower stream producers," the federation said.Chang Jian, an economist at Barclays Capital, said the reading indicated a potential sharp slowdown in the first quarter of next year.
"It highlights rapidly slowing external demand," Chang said. "For now, we continue to expect a soft landing in China. However, people should be mindful of downside risks from a global recession and the domestic property market."

China's exports grew at the slowest pace in eight months in October, the latest figures available, and may continue to deteriorate, analysts said.Meanwhile, the HSBC China Manufacturing Purchasing Managers' Index, slanted more towards private and export-oriented firms, dropped to a 32-month low of 47.7 in November, down from 51 in October.
"The reading points to a sharp deterioration in business conditions across the manufacturing sector," said Qu Hongbin, chief economist for China at HSBC. "Combined with a faster than expected easing in inflation, this implies that growth is set to overtake inflation as China's top policy concern."On Wednesday, the central bank announced its first cut in banks' reserve requirement ratio in three years, injecting up to 400 billion yuan (US$62.7 billion) into the banking system.
Analysts treated the cut as a signal of broader policy fine-tuning to sustain China's economic growth, which slowed to 9.1 percent in the third quarter from 9.5 percent in the second and 9.7 percent in the first three months.

Earlier this week, two major financial institutions cut their forecast of China's economic growth next year.

UBS AG said it may expand 8 percent, down from a previous estimate of 8.3 percent, while Citigroup Inc lowered its forecast to 8.4 percent from a previous 8.7 percent.