By Lucy Hornby
BEIJING, Sept 20 Manufacturing in China
contracted for the 11th month in a row in September, according
to a private sector survey of factory managers that indicated
the world's second largest economy remains on track for a
seventh quarter of slowing growth.
The HSBC Flash China manufacturing purchasing managers'
index (PMI) showed activity stabilized in September after
hitting a nine-month low in August, with the headline reading
ticking up to 47.8 from 47.6 last month.
But while the economy may not have worsened, there were few
signs of a fast turnaround. Rather, the PMI, which provides the
first glimpse of September's conditions for Chinese industry,
pointed to a month in which a slide was halted but not reversed.
September's reading extends the longest period that the PMI
has been below 50 - the value that separates contraction from
expansion - since HSBC began compiling the survey in 2004.
There was a broad steadying across the sub-indexes in the
survey, released on Thursday, with the exception of output,
which dipped to its lowest level in 10 months.
"China's manufacturing growth is still slowing, but the pace
of slowdown is stabilising. Manufacturing activities remain
lacklustre, thanks to weak new business flows and a longer than
expected destocking process," Qu Hongbin, chief economist for
China at HSBC, said in a statement accompanying the survey.
"This is adding more pressure to the labour market and has
prompted Beijing to step up easing over the past weeks. The
recent easing measures should be working to lead to a modest
improvement from Q4 onwards."
China unveiled a series of measures last week to help
stabilise export growth, including faster payment of export tax
rebates and boosting loans to exporters.
That was on top of a series of approvals for infrastructure
projects worth more than $150 billion, two earlier cuts to
interest rates, the easing of bank reserve requirements that
freed about 1.2 trillion yuan ($190 billion) for lending and a
steady series of liquidity injections into money markets.
Still, purchasing managers in the survey had little cause
for premature cheer. A sub-index that measures output fell to
47.0, its lowest level since November 2011.
After spending several months bumping just beneath the
crucial 50 mark, the overall PMI index is now at a level rarely
seen since the 2008-2009 global financial crisis.
Asian share markets extended losses after the data. Shanghai
stocks fell 1.6 percent to a two-week low, while
Australia's big mining stocks - which tend to react to growth
expectations in China, their main market - fell more than 1.5
Copper futures, which move closely in line with
industrial expectations, fell 1 percent in Asian trade.
The flash, or preliminary, survey offers an early peek at
data for September, and suggests economic growth in China is
still slack despite what many see as an improvement in the
important property sector.
"The good news is it hasn't got any worse, the bad news is
it's no better really," said Shane Oliver, head of investment
strategy at AMP Capital Investment.
"It's telling us Chinese growth is not losing further
momentum but recovery remains elusive."
China's home prices showed a modest increase for a second
consecutive month in August, rising 0.1 percent from July,
signalling a gentle recovery in the property market
Steel prices hit their highest point in a month on
Wednesday, as signs of a pick-up in demand prompted mills to
Nevertheless, China appears on track for a seventh quarter
of slowing growth in the third quarter this year, despite a
number of measures designed to encourage private investment and
infrastructure construction while avoiding a further pile-up in
local government debt.
So far the stimulus measures have not fed through to the
broader economy, although inflation began to revive in August,
led by higher food prices, after hitting a 30-month low in July
Many economists lowered their forecasts for the world's
second largest economy after weak July and August data,
reflecting both external headwinds and domestic weakness. They
now expect the third quarter to be the nadir, with full year
growth dropping below 8 percent for the first time since 1999.
"Overall, there is not enough in the latest data to be
confident the economy has turned the corner, though momentum
does at least appear stable," Capital Economics' China economist
Qinwei Wang wrote before the PMI release, referring to a number
of indicators his firm tracks.
"The main risk factors are as they were a year ago: the
uncertain outlook for property and the ailing global economy."
He noted that the growth rate is steadying on a monthly and
quarterly basis, although weakness in property and trade means
it is still slowing on an annual basis.
SIGNS OF HOPE
There were some green shoots in September that could support
the idea of a late-year rebound.
After several dismal months, HSBC's sub-index tracking new
export orders stabilised. Other brighter signs included rises in
sub-indexes measuring total new orders, employment and backlogs
of work, although both new orders and employment are still below
the 50-point that denotes contraction.
The tick higher in the new export orders index comes after
hitting its lowest point since March 2009 the month before.
Still, the Ministry of Commerce warned on Wednesday that
exports could weaken through the end of the year, with ministry
spokesman Shen Danyang calling the outlook grim.
China cut interest rates in June and July and has been
injecting cash into money markets to ease credit conditions to
support an economy that notched a sixth straight quarter of
slower annual growth, at 7.6 percent, in the April-June period.
Most analysts expect at least one more interest rate and two
more cuts in banks' required reserve ratios before the end of
the year, to ease conditions and support growth.
But some believe those measures could be held back until
after the ruling Communist Party's congress at some point before
the end of this year in which a new generation of party leaders
will be named.
That will give the incoming team a boost by improving the
economy and the national confidence, they argue.