China September official factory PMI ticks up; growth seen slow

Reuters News
Posted: Sep 30, 2012 9:08 PM
China September official factory PMI ticks up; growth seen slow

By Lucy Hornby

BEIJING (Reuters) - China's economy offered more evidence of a seventh straight quarter of slowing growth on Monday, with an official survey of factory managers remaining in contractionary territory for a second successive month despite improving from August's low.

China's official factory purchasing managers' index rose to 49.8 in September from 49.2 in August, the National Bureau of Statistics said on Monday. August had marked the lowest reading since November 2011, as the world's second-biggest economy struggles against cooling exports, factory output and fixed asset investment.

"The data continues to reinforce the hard landing that we have predicted for China, because this is the second consecutive month of a sub-50 reading," said Prakash Sakpal of ING in Singapore, which forecasts Chinese economic growth will be close to 7 percent in both the third and fourth quarters of this year.

"September PMI readings are normally fairly strong and we don't see that this month is that much better than last month."

A sub-index for new orders crept back towards the 50-mark that separates expansion from contraction, hitting 49.8, its highest point since May, while the output sub-index also strengthened to 51.3.

"This was the major factor in the improvement in this month's index, illustrating a diminishing rate of slowdown in orders coming from factory customers," the statistics bureau said.

The overall reading for September's official PMI matched the prediction of economists polled this week by Reuters.

A private sector PMI survey published on Saturday by HSBC ticked up to 47.9 in September from a nine-month low of 47.6 in August, pointing to a month in which a slide in the rate of economic growth was halted but not reversed.


Market demand for food, beverages, tobacco and computers all improved, but the demand for refined metals, steel and other building materials remained under pressure, the bureau said. That is consistent with a long slowdown in China's real estate sector following a credit crunch that has dragged on economic growth.

China's indebted state-owned steel mills have particularly suffered from the drop in demand for construction steel as well as weakness in demand for shipbuilding and automotive steel, where they had heavily invested in recent years.

China's annual economic growth could ease to 7.4 percent in the third quarter - the seventh consecutive quarter of slowdown, before picking up to 7.6 percent in the final three months, according to the latest Reuters poll.

China's central bank said on Tuesday that it will "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

The central bank cut interest rates twice in June and July and lowered banks' reserve requirement ratio (RRR) three times since late 2011 as part of efforts to support the economy.

But in recent weeks the bank has opted to pump short-term cash into money markets to ease credit strains, rather than take more substantial measures to loosen policy for fear of feeding upward pressure on property prices and inflation.

Analysts still expect further policy loosening, including cuts in RRR or even interest rates in the coming months.

In addition, the government has been fast tracking some infrastructure projects and quickening the payment of tax rebates to exporters.

(Additional reporting by Xu Wan; Editing by Alex Richardson)