China’s Manufacturing Expands at Below-Forecast Pace: Economy
Two Chinese manufacturing indexes showed a slower-than-estimated pace of expansion, a signal the nation’s economic recovery may be losing steam.
The official Purchasing Managers’ Index was 50.1 in February, the weakest in five months and down from 50.4 in January, a report from the National Bureau of Statistics and China Federation of Logistics and Purchasing showed today in Beijing. A separate gauge from HSBC Holdings Plc and Markit Economics dropped to a four-month low of 50.4 from 52.3. Readings above 50 indicate expansion.
Contractions at small and mid-sized manufacturers in the official survey underscore the headwinds China’s new government will face when it takes power this month after the annual session of parliament. Li Keqiang, set to become premier, faces the task of sustaining a rebound in growth without triggering a resurgence in inflation and banks’ bad debts.
“The recovery is obviously weak,” said Xie Dongming, a China economist at Oversea-Chinese Banking Corp. in Singapore. “The official PMI is almost at the line between expansion and contraction and seasonal factors from the Chinese New Year holidays alone can’t explain this.”
The official index compares with the 50.5 median estimate in a Bloomberg News survey of 31 analysts. The median forecast of 14 economists for the HSBC gauge was 50.6, after a preliminary reading of 50.4 issued Feb. 25. A measure of new orders in the government survey fell to 50.1, a five-month low, while export orders showed a second month of contraction.
Economic data in January and February are “significantly distorted” by the weeklong Chinese Lunar New Year holiday, Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong, said in a note today. The festival fell in February this year and January last year. “We believe the Chinese economy is still on a cyclical upturn,” Lu wrote.
The logistics federation said today that the gauge’s decline is normal because of the holiday. Zhang Liqun, a researcher with the State Council’s Development Research Center, said in the federation’s statement that the reading shows “economic growth will move from rebounding to stabilizing.”
China’s economy expanded 7.9 percent in the final three months of 2012 from a year earlier, the first pickup in eight quarters. Growth may accelerate to 8.2 percent in the three months through March, according to the median estimate of 23 analysts surveyed by Bloomberg News.
The economic pickup “could remain narrowly based led by a strong rebound of heavy industries,” Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a research note today. A steel industry PMI “rose strongly,” he wrote.
The federation in January increased the number of companies in its survey to 3,000 from 820 and reclassified the industries they cover into 21 groups from 31. HSBC’s index is based on responses from purchasing managers at more than 400 businesses and is weighted more toward small companies.
While today’s report may damp optimism for an acceleration in growth, other indicators suggest the economy is picking up. New lending in January was the highest in two years and a broad measure of credit, known as aggregate financing, rose to a record, central bank data show.
Risks that inflation and gains in home prices will accelerate, concerns that bad debts at the nation’s banks are increasing, and pledges by the country’s new leadership to focus more on the quality and efficiency of growth, may limit the government’s tolerance for faster economic expansion.
Central-bank branches can raise down-payment requirements and interest rates for second-home mortgages in cities with “excessively fast” price gains, according to a statement on the central government’s website today, as authorities step up efforts to cool the property market.
China’s leadership warned of “severe challenges” facing the country amid a “complex international situation and difficult domestic tasks concerning reform, development and maintaining stability,” the official Xinhua News Agency reported, citing a meeting of the Communist Party Central Committee that ended yesterday.
They stressed the need to “maintain the momentum of economic development” while also urging efforts to promote “sustainable and healthy economic development,” Xinhua said.
Premier Wen Jiabao will next week formally announce this year’s economic targets when he delivers his final work report to the National People’s Congress. The goal will be maintained at 7.5 percent, Bloomberg News reported in December, citing two bank executives and a regulatory official briefed on the matter. Expansion slid to 7.8 percent last year, the least since 1999.
Almost half of China’s provinces are setting their growth sights lower this year, according to data from Nomura Holdings Inc. The weighted average target has dropped to 9.9 percent from 10.3 percent, Citigroup Inc. calculates.
The People’s Bank of China last month signaled concern that inflation risks will increase and said it must be alert to changes in price-gain expectations. “An economic recovery and demand expansion may pass into CPI in a relatively fast manner,” it said in its quarterly monetary policy report, referring to the consumer-price index.
A gauge of input prices in the official PMI was 55.5 after 57.2 in January, the first back-to-back readings above 55 since September 2011.
Elsewhere in Asia, Japan’s consumer prices fell in January, while South Korea’s exports dropped for the second time in three months in February. Indonesia reported inflation accelerated to a 20-month high in February.
Data published in Europe showed the euro-area jobless rate rose to a record in January, while the region’s manufacturing output contracted for a 19th straight month in February.
In the U.S., the Commerce Department is forecast to report consumer spending rose at the same pace in January as the previous month even as incomes probably fell. A reading of 52.5 is projected for the Institute for Supply Management’s factory index after a nine-month high of 53.1 in January, a separate survey showed.
Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement today that the “pace of ongoing recovery is mild, implying no need for the PBOC to tighten policy any time soon.”
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