China November PMIs show economy cooling, argue for more stimulus

By Reuters

Dec 01, 2014 12:34 AM EST

Growth in China's manufacturing sector slowed in November, suggesting the world's second-largest economy is still losing momentum and adding pressure on authorities to ramp up stimulus measures after unexpectedly cutting interest rates last month.

After saying for months that China does not need any big economic stimulus, the People's Bank of China (PBOC) surprised financial markets by lowering rates on Nov. 21 to shore up growth. Analysts see more moves in coming months if the economy continues to stumble.

"The PBOC's rate cut appears to have failed to improve sentiment, and we see little improvement in activity indicators in November," ANZ said in a research note.

"In order to maintain growth for the whole year at around 7.5 percent (the official target), we believe that Chinese authorities will intensify easing efforts in December to accelerate growth momentum."

The official Purchasing Managers' Index (PMI) eased to an eight-month low of 50.3 last month, the National Bureau of Statistics said on Monday, still indicating a modest expansion in activity but below forecasts for 50.6 and October's 50.8.

The official PMI survey, which is biased toward large, state-owned factories, showed that demand for Chinese goods was stronger in China than abroad. New export orders contracted.

A similar private survey showed growth at Chinese factories stalled last month. The final HSBC/Markit China Manufacturing Purchasing Managers' Index (PMI) edged down to 50 in November, a six-month low and right on the boom-bust 50-point level that separates growth from contraction on a monthly basis.

The reading was unchanged from a preliminary "flash" figure and down from the final 50.4 in October.

The HSBC survey focuses more on smaller firms, which are facing more stresses as cooling demand cuts into sales and rising borrowing costs make it tougher to pay off debts, a point the PBOC stressed when it eased rates.

The gloomy reports reinforce expectations that the economy has lost steam despite a flurry of measures to lift growth, fuelling bets that more policy loosening is on the cards, either in the form of more rate cuts or reductions in the amount of reserves banks must hold to encourage them to lend.

Hurt by a sagging property market, unsteady exports and cooling domestic demand and investment, China's growth is expected to slow to a 24-year low of 7.4 percent this year, though the fourth quarter is shaping up to be possibly weaker than earlier thought.

Growth is expected to cool further to 7.1 percent in 2015, a Reuters poll showed.

Sources familiar with China's policy-making said leaders are prepared to lower rates again and loosen lending curbs on concerns that falling prices could cause a spike in bad loans, business failures and job losses. Prior to the rate cut, some policymakers had feared growth was on the verge of slipping below 7 percent, a level not seen since the global financial crisis.


The PMI surveys also showed the labor market remained under stress, and other reports abound of many workers being kept on the payrolls of inefficient "zombie" companies.

The official PMI has shown employment contracting mildly since June 2012, while the HSBC survey showed jobs shrank for the 13th straight month.

"Disinflationary pressures remain strong while the labor market weakened further," said Qu Hongbin, the chief economist at HSBC, while noting that the rate cut last month should bolster property and manufacturing investment.

"We continue to expect further monetary and fiscal easing measures to offset downside risks to growth."

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