| BEIJING, Sept 29
BEIJING, Sept 29 China's economy has almost
certainly suffered a seventh straight quarter of slowing growth,
with a new private sector survey of factory managers revealing a
near year-long decline in business activity and a fresh fall in
export orders in September.
The HSBC China Manufacturing purchasing managers index (PMI)
showed overall factory activity shrank for an 11th consecutive
month in September, despite the 47.9 final index level being
slightly ahead of a preliminary, or flash, estimate of 47.8 and
the August reading of 47.6.
It extends the longest run of readings below 50 - which
separates expansion from contraction - in the survey's 8-year
history, with the need for more pro-growth government policies
signalled by a fall in the output sub-index to its lowest since
March and a slide in export orders to a 42-month trough.
"The sharper contraction of new export orders and the
lingering pressures on job markets mean that Beijing should step
up easing to support growth and employment," Qu Hongbin, chief
China economist for survey sponsor HSBC, said in a statement.
Two cuts to interest rates, the easing of bank reserve
requirements that freed about 1.2 trillion yuan ($190 billion)
for lending and the approval of infrastructure projects worth
more than $150 billion have so far failed to arrest the decline
in China's overall economic growth.
"Fiscal measures should play a more important role in the
coming months," Qu said.
Analysts expect 2012 to be China's weakest full year of
growth since 1999 at just 7.7 percent, according a Reuters poll
which forecasts annual growth of 7.4 percent in Q3, down from
Q2's 7.6 percent.
The slide in the PMI's export orders sub-index to a
three-and-a-half-year low of 44.9 is a crucial gauge for the
accuracy of that call.
Exports generated 31 percent of gross domestic product in
2011, according to World Bank data, and support an estimated 200
million jobs - around a quarter of the country's workforce.
Export growth this year is averaging around 7.8 percent
versus 2011. August's growth slumped to 2.7 percent compared
with a year ago and the Commerce Ministry sees a risk that
things get worse in the months ahead - jeopardising the official
10 percent target for expanding trade this year.
An adviser to China's central bank conceded on Thursday that
Beijing policymakers had underestimated the severity of this
year's global economic slowdown and said that further cuts to
interest rates or reserve requirements would hinge on any new
deterioration in the external environment.
China's exports have been hit hard by the festering
sovereign debt crisis in the European Union, where a slide back
towards recession has sapped demand in the single biggest
foreign market for Chinese factory goods.
Analysts say the destocking it has triggered has dragged
down industrial production growth and will ultimately show up
when Q3 economic data is published in mid-October.
"We expect the data to show that demand remained weak,
destocking continued and the recovery has yet to happen," said
Tao Wang, China economist at UBS in Hong Kong.
"We forecast that industrial production growth slowed to
about 8.6 percent year-on-year in September, while Q3 GDP growth
slowed to 7.3 percent year-on-year," she wrote in a client note.
Tao believes the deterioration is so entrenched that GDP
growth will slow to an annual rate of 7.0 percent in Q4 before
rebounding through the course of 2013.
The consensus view is that Q3 is the nadir of this cycle and
the HSBC PMI offers some sign that this may be the case, despite
the index having consistently pointed to a more bearish economic
backdrop this year than China's official PMI.
The official PMI is set to be released by the National
Bureau of Statistics (NBS) on Oct. 1 and analysts polled by
Reuters expect it to have rebounded to 49.8 from August's 49.2.
A difference in samples and survey methodology largely
explain the discrepancy. The NBS captures data from China's
biggest firms - the dominant state-owned enterprises - while
Markit, the UK-based data provider that compiles the survey
sponsored by HSBC, tracks mainly smaller private sector firms.
SOME SIGNS OF STABILISATION
Markit said its survey detected some signs of stabilisation
in manufacturing activity in September as the rate of
deterioration in the sector eased.
Backlogs of work remained steady for 77 percent of
respondents, while only 13 percent reported a decrease.
And it said the rate of job cuts reported was relatively
modest, with nearly 85 percent of survey respondents indicating
no change in employment levels on the previous month.
Unemployment is a vital indicator for China's ruling
Communist Party, which is acutely sensitive to anything that
could trigger discontent in the run-up to its party congress -
expected later this autumn - when a new generation of leaders
will be named ahead of a once-a-decade handover of power.
The loss of millions of Chinese factory jobs in a matter of
months in late 2008 as world trade ground to a halt during the
depths of the global financial crisis triggered a massive 4
trillion yuan ($635 billion) stimulus package from Beijing.
The lack of job cuts so far and persistent signs of
tightness in the labour market are cited by analysts as one
reason for the government's reluctance to open the stimulus taps
this time around, along with attendant inflationary and
speculative risks that it could unleash.
Credit ratings agency Fitch said on Friday it had downgraded
its 2012 growth forecast for China to 7.8 percent, from 8
percent previously, on a combination of slowing exports and
efforts to squeeze speculative risks from the economy.
But it said it did not expect Beijing to deploy any more
than marginal monetary and fiscal tools to boost growth, unless
there was a sudden deterioration in the labour market.
"The resilience of the labour market seen in current data
suggests growth of 7.5-8.0 percent may be in line with the
economy's potential rate," Fitch said.
(Editing by Alex Richardson)