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March 2, 2014

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Manufacturing growth rate at 8-month low

CHINA’S manufacturing growth slowed to an eight-month low in February, reinforcing the sector’s softening growth momentum since the fourth quarter of last year.

The official Purchasing Managers’ Index, a comprehensive gauge of operating conditions in industrial companies, eased to 50.2 last month, compared to 50.5 in January, the National Bureau of Statistics and the China Federation of Logistics and Purchasing said yesterday.

A reading above 50 still means expansion, but last month’s pace was the slowest since last June.

“This was the third consecutive month that the official PMI registered a decline, reinforcing the sector’s softening growth momentum,” said Zhu Haibin, chief economist for China at JPMorgan.

Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said if the downward trend remains, the risk of a growth rate below 7 percent in the first quarter of 2014 will increase.

“The government may have to roll out accommodative policies to sustain the growth momentum,” Zhou said.

At the annual session of the National People’s Congress next week, China will announce its economic growth target for this year, which is expected to be kept unchanged at 7.5 percent.

Zhao Qinghe, a senior analyst with the statistics bureau, said the decline of the official PMI was also due to the timing of the Spring Festival holiday, when most enterprises suspended production and workers went back home.

Production fell 0.4 points from a month earlier to 52.6 in February, while new orders dropped to 50.5, from 50.9 in January.

New export orders slipped to 48.2, the third consecutive month below the 50 threshold.

Despite overall retreats, business expectation climbed to 61.8 last month, indicating strengthening enterprises’ confidence for future growth.

China’s economic performance turned out to be rather mixed at the start of 2014. The latest set of figures pointed to surprisingly good trade, sufficient credit, low inflation and more foreign direct investment in January, but both manufacturing and services PMI decreased in the past two months.

JPMorgan’s Zhu said he expected the overall economy to continue on a moderating trend in the first half of this year as authorities beef up efforts to restructure the economy, curbing excess capacity and containing financial risks.

“For the year as a whole, we look for relatively stable consumption growth, moderate improvement in exports,” Zhu said.

“But such good news will be more than offset by a slowdown in fixed investment which can be attributed to lingering manufacturing overcapacity, tighter local government financing conditions and a slowdown in housing,” Zhu added.


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