Jan 02, 2015

    China's official PMI down, stimulus hopes up


    CHINA'S factory activity sputtered last month, underlining the challenges facing the country's manufacturers as they fight rising costs and softening demand amid a cooling economy.

    After a rough 2014, the world's second-largest economy looks set to start the new year on a weak note, reinforcing expectations that Beijing will roll out more stimulus to avert a sharper slowdown, which could trigger job losses and debt defaults.

    A property slump is expected to last well into this year, companies will continue to struggle to pay off debt and export demand may remain erratic, leaving only the services sector as the lone bright spot in the economy.

    China's official Purchasing Managers' Index slipped to 50.1 last month from November's 50.3, a government study showed yesterday, its lowest level of the year and clinging just above the 50-point level that separates growth from contraction on a monthly basis.

    Analysts polled by Reuters had forecast a reading of 50.1. "This indicates that industrial growth is still in a downward trend, but the pace (of declines) is slowing," Zhang Liqun, an economist at the Development Research Centre, said in a statement accompanying the report. "The current economic situation is in the process of returning to stability from slowing down," he said.

    A similar private survey on Wednesday showed that activity shrank for the first time in seven months last month. That survey focuses on smaller companies, which are facing greater strains, notably higher financing costs and problems getting loans.

    The official survey looks more at larger, state-owned firms, which have been more resilient to the protracted downturn, partly due to generous government subsidies and better access to credit.

    Many analysts expect economic growth in the fourth quarter to slow only marginally from 7.3 per cent in the third quarter, though a raft of weak data suggests that may be too optimistic.

    That means full-year growth will undershoot the government's 7.5 per cent target and mark the weakest expansion in 24 years.

    In a bid to spur growth and keep borrowing costs down, the central bank unexpectedly cut interest rates for the first time in more than two years on Nov 21. It has also injected more funds into the banking system in recent months and relaxed restrictions to persuade risk-averse banks to lend more.

    In addition, the economic-planing agency has been approving more infrastructure projects.

    While its recent moves may have bought the central bank some time to see if conditions improve, many economists still expect more interest-rate cuts as well as reductions in banks' required reserve ratios this year, perhaps as soon as the first quarter.

    That would allow banks to lend more money at more attractive rates, but the authorities will still need to find a way to stimulate genuine demand at a time when domestic demand is sluggish and many businesses are in no mood to expand.

    "We believe that investment in the manufacturing sector will see only single-digit growth this year, compared with 13 per cent last year," economists at ANZ said in a research note.