China Manufacturing Slump May Match That of 2008 Crisis

China Manufacturing May Expand for First Time in Thirteen Months
A worker sews shirts at a factory in Shenzhen, Guangdong province, China. Photographer: Forbes Conrad/Bloomberg

China’s manufacturing may shrink for an eighth month in June, matching the streak during the global financial crisis in a signal the government’s stimulus has yet to reverse the economy’s slowdown.

The preliminary reading was 48.1 for a purchasing managers’ index today from HSBC Holdings Plc and Markit Economics. Above-50 readings indicate expansion. The lowest crisis level was 40.9 in November 2008, when industrial production increased 5.4 percent from a year earlier, compared with a gain of 9.6 percent last month.

Today’s report contrasts with comments by officials expressing confidence growth will rebound, with President Hu Jintao saying in remarks published June 17 that China has taken “targeted measures” to boost domestic demand. Asian stocks fell and the yuan weakened for a second day against the dollar.

“Beijing’s policy easing so far has not been enough,” Qu Hongbin, Hong Kong-based chief China economist for HSBC, said in a Bloomberg Television interview. “Probably more needs to be done if they really want to stabilize the growth.”

If confirmed on July 2, the gauge would be at the lowest since November 2011 and equal the run of below-50 readings from August 2008 to March 2009.

The yuan was at 6.3638 at 3:04 p.m. in Shanghai. The MSCI Asia Pacific Index of stocks dropped 0.6 percent, while the Shanghai Composite Index declined 1.4 percent.

The Chinese government signaled a more-aggressive approach to sustaining expansion last month when Premier Wen Jiabao called for more efforts toward stabilizing growth. The People’s Bank of China on June 7 cut interest rates for the first time since 2008 and the economic planning agency is stepping up approvals of investment projects.

Loosening Policy

A quarterly central bank survey of 3,000 bankers in China, published June 19, found that 32 percent said monetary policy will be loosened next quarter, compared with 6.7 percent in the prior survey. About 68 percent of respondents deem current monetary policy “appropriate,” up 8.6 percentage points from the previous quarter.

Exports may slow in the coming months, and falling prices and moderation in new orders “suggest weak domestic demand” that will probably weigh on the labor market, Qu said in a statement.

The expansion is starting to accelerate, according to some officials. The economy is rebounding this month after a “pretty obvious” downward trend in April and May, Chinese Commerce Minister Chen Deming told reporters on June 18 in Los Cabos, Mexico. Chen Yulu, an academic adviser to China’s central bank, said in a June 16 interview that the economy will bottom out this quarter.

Paring Forecasts

Some economists are paring forecasts for growth this year. Credit Suisse Group AG last week cut its estimate to 7.7 percent from 8 percent, while Deutsche Bank AG lowered its prediction to 7.9 percent from 8.2 percent. The median estimate of 15 analysts was 8.2 percent in a Bloomberg News survey conducted June 8-13.

Anhui Conch Cement Co., China’s biggest cement maker, said June 7 that its first-half profit may fall by more than 50 percent from a year earlier because of low product prices.

Elsewhere in the Asia-Pacific region, New Zealand’s economy grew at the fastest pace in five years last quarter. Gross domestic product expanded 1.1 percent from the previous three months, almost three times the 0.4 percent median estimate in a Bloomberg News survey of economists.

BOK Forecast

The Bank of Korea indicated it may cut its 2012 economic-growth forecast for the second time in four months in July after lowering its projection to 3.5 percent from 3.7 percent in April. In Japan, parliament approved the government’s nominees for the Bank of Japan policy board, economists Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co.

Retail sales in the U.K. probably climbed 1.2 percent in May from the previous month, when they slid the most in more than two years, according to analyst forecasts ahead of a report today.

An index of consumer confidence in the euro area probably fell to a four-month low of minus 20 in June, according to economist predictions.

Zhang Zhiwei, Nomura Holdings Inc.’s Hong Kong-based chief economist for China, said in a note today that the report “does not change our view that, underpinned by increasingly accommodative monetary and fiscal policies, China’s economy is in the process of bottoming out.” The HSBC index has risen in June in just two of the last eight years, he said.

Growth Rebound

Zhang forecasts growth of 7.8 percent this quarter followed by 8.6 percent in the third period and 8.9 percent in the last three months of the year.

Falling borrowing costs for first-home buyers in China may indicate that the government wants to limit the slowdown in the property market caused by a clampdown on speculation. Home values fell in a record 54 of 70 cities tracked by the government in May.

Today’s preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies, according to HSBC. The government releases its own monthly index on July 1. That gauge has shown six straight months of expansion while declining to 50.4 in May from 53.3 in April.

— With assistance by Xin Zhou

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