Dec 02, 2014

    Chinese economy's growth hit by Apec factory shutdown

    A CHINESE manufacturing gauge fell as factory shutdowns aggravated a pullback in the economy, raising pressure on the central bank to ease policy further after it lowered interest rates for the first time in two years.

    The government's Purchasing Managers' Index (PMI) fell to an eight-month low of 50.3 last month, compared with the 50.5 median estimate of analysts in a Bloomberg survey and October's 50.8. Readings above 50 indicate expansion.

    The government ordered factories in Beijing and surrounding regions to shut down during the Asia-Pacific Economic Cooperation (Apec) forum, to curb pollution. China's central bank cut interest rates last month as the economy heads for its slowest full-year expansion since 1990.

    "Today's official PMI reading points to continued downward pressure on manufacturing activity," said Julian Evans-Pritchard, China analyst in Singapore at Capital Economics.

    "The recent cut in the benchmark rate will do little to boost economic activity unless it is followed by a loosening of quantitative controls on lending, which policymakers will remain cautious about given concerns over mounting credit risk."

    Asian stocks fell with United States and European index futures.

    The official PMI is released by the National Bureau of Statistics and China Federation of Logistics and Purchasing in Beijing. The index is based on responses to surveys sent to purchasing executives at 3,000 companies.

    The final reading of another manufacturing PMI last month from HSBC Holdings and Markit Economics was 50.0. It was unchanged from a preliminary reading.

    "The major drag was the Apec summit last month, when the government suspended many industrial and construction activities in northern China," said Lu Ting, Bank of America's head of Greater China economics in Hong Kong. "We expect a rebound this month as those activities resume and after recent government easing measures."

    Most components of the official PMI declined from a month earlier, with small enterprises showing the biggest drop.

    The People's Bank of China reduced the one-year lending rate by 0.4 percentage point to 5.6 per cent last month, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75 per cent. Economists at banks including JPMorgan Chase, Barclays and UBS Group all said the central bank will act again to shore up demand.

    To keep this year's growth at around 7.5 per cent, the authorities will intensify easing efforts this month, said Liu Li-Gang, chief economist for Greater China at Australia & New Zealand Banking Group in Hong Kong.

    "On the monetary policy front, we see that the central bank is likely to add more liquidity into the market and to encourage commercial banks to extend more credits to the real economy," Dr Liu wrote in a note.