27 June 2019
A subindex of new orders showed weaker growth. Photo: Bloomberg
A subindex of new orders showed weaker growth. Photo: Bloomberg

Weakness in Chinese manufacturing continues

China’s factory sector continued to weaken in November, The Wall Street Journal reported.

Two gauges of factory activity indicated manufacturing lost momentum despite a recent cut in interest rates.

The official measure of manufacturing activity slipped to its lowest since March, while the private HSBC/Markit gauge touched a six-month low, data released Monday showed.

“Investment in property and manufacturing remains weak, so the government is the only one spending,” Macquarie Group economist Larry Hu told the newspaper.

“And when government spending wanes in the winter months, the economy falls off”, in part due to cold weather affecting construction projects.

On Nov. 21, the People’s Bank of China cut the one-year lending rate 0.4 percentage point to 5.6 percent and the deposit rate by 0.25 percentage point to 2.75 percent, the first broad-based cuts since July 2012.

Economists saw it as a move to breathe new life into the world’s second-largest economy and ease pressure on struggling companies.

However, economists said they don’t see much evidence yet that last month’s interest rate cut has boosted output.

Banks aren’t expected to pass on the full benefit to customers, they said, and are likely to continue offering governments and state-owned companies the best lending terms.

“The rate cut probably isn’t enough,” said HSBC economist Julia Wang. “We think there will be more easing needed given the economic situation.”

HSBC forecast a 0.5 percentage point cut in lending rates by the end of the first half of next year and a 1.5 percentage point cut within the next year in the interest rate on reserves financial institutions are required to hold with the central bank,  Wang said.

The weaker purchasing managers index readings on Monday are consistent with recent figures that show weaker investment, industrial production, consumption and lending activity.

China’s gross domestic product grew 7.3 percent in the third quarter, its slowest pace in more than five years.

The official PMI index fell to 50.3 in November from 50.8 in October, the National Bureau of Statistics said Monday.

A reading above 50 indicates an expansion in manufacturing activity from the previous month, while one below 50 indicates contraction.

The subindexes for output and new orders showed weaker growth, and inventories of raw materials continued to contract.

Although the official PMI fell in November, “it was still in positive territory, showing that the manufacturing sector is still expanding,” the statistics bureau said in a statement.

The final November reading for the HSBC/Markit PMI released Monday was 50, right on the cusp between expansion and contraction. It fell from 50.4 the month before.

China’s new home prices fell in November for the seventh month in a row, data provider China Real Estate Index System reported Sunday.

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