A Chinese manufacturing index unexpectedly fell to a three-month low as output gains eased and employment weakened, suggesting the world’s second-largest economy is vulnerable to a slowdown.
The preliminary reading of 50.5 for aPurchasing Managers’ Index (EC11CHPM) released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.8 in November and the 50.9 median estimate in a Bloomberg News survey of 11 analysts. A number above 50 indicates expansion.
Chinese stocks extended losses as the manufacturing report underscored the Communist Party’s warning last week that the economy faces “downward pressure.” Weaker manufacturing may test the President Xi Jinping’s resolve to push through policy changes such as reducing local-government debt and industrial overcapacity.
“The reading confirms our view that Chinese GDP growth is already decelerating,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. He forecasts 7.2 percent gross domestic product expansion in 2014, compared with 7.7 percent this year.
China’s benchmark Shanghai Composite Index (SHCOMP) was down 1.4 percent at the 11:30 a.m. local-time break.
Separately today, large Japanese businesses pared their projections for capital spending in the fiscal year ending March 2014, according to a quarterly Bank of Japan report. Markit will also release PMI gauges for the euro area, France, Germany and the U.S.
Flash PMI
Today’s China report, known as the Flash PMI, is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers. The final reading will be released on Jan. 2.
The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own survey of purchasing managers on Jan. 1. The gauge’s November reading was 51.4, the same as October, which was an 18-month high.
Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement today that the December figure is still higher than the average reading in the third quarter, “implying that the recovering trend of the manufacturing sector starting from July still holds up.”
Measures of new orders and export orders strengthened, while input prices increased at a slower rate, according to today’s report. The data were collected from Dec. 5-12, compared with last month’s survey from Nov. 12-19.
Wang Tao, chief China economist at UBS AG in Hong Kong, said the figures shouldn’t be “over-interpreted,” in part because of the earlier dates, as she maintained her forecasts for 7.6 percent GDP growth this quarter and in 2014.
Export Skepticism
Weakness in today’s manufacturing data adds to concerns that November’s official export numbers may have been inflated, said Tim Condon, head of Asia research at ING Groep NV inSingapore, who previously worked for the World Bank. Outbound shipments rose 12.7 percent last month from a year earlier, according to customs data last week.
Top party and government officials held the annual Central Economic Work Conference last week to map out policies for next year. A report issued after the meeting said policy makers will try to stabilize expansion, restructure the economy and promote reforms.
Maintain Continuity
Leaders also pledged to maintain continuity and stability in macroeconomic policies in 2014 and stick to a prudent monetary policy and proactive fiscal policy. They also vowed to tackle local government debt.
Separately, the State Council said it will expand the over-the-counter stock market to ease financing difficulties for small and medium-sized enterprises and expand channels for private investment. Such businesses may find it difficult to get loans from banks who prefer to issue credit to state-owned companies.
Higher costs and wages in China are prompting some companies to set up manufacturing in neighboring Asian economies. Samsung Electronics Co., the world’s biggest smartphone maker, is building a $2 billion plant in Vietnam that may make 120 million handsets a year by 2015, according to two people familiar with the company’s plans who asked not to be identified because the matter is private.
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