China Manufacturing is Contracting

Econintersect:  The Chinese PMI (Purchasing Managers’ Index) has been reported at 49.0 for November.  Readings below 50 correspond to a contracting manufacturing sector.  This was the first month of contraction in 2 ¾ years (since February 2009).  In October the index reading was 50.4 and was the 34th consecutive month of expansion.  This follows the People’s Bank of China announcement, just hours before the PMI news,  that the reserve requirements for banks was being cut.  China had been increasing reserve requirements earlier this year in an effort to bring down inflation.

From Bloomberg:

Today’s report “clearly adds to the urgency for easing,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “The PMI is showing weakness across the board and this would seem to be the reason the government cut banks’ reserve requirements. If this trend continues we should see another cut pretty soon.”

The Shanghai Composite Index (SHCOMP) fell 3.3 percent yesterday, the biggest decline in almost four months. India yesterday reported that its economy grew the least in two years and Thailand cut interest ratesas a slowdown in Asia limits the region’s ability to support a faltering world recovery.

The Bloomberg article goes on with other quotes indicating belief that China’s growth will slow further over the next two quarters.  If economic deterioration in the west continues, one Chinese economist (Li Wei, a Shanghai-based economist with Standard Chartered Plc) believes the government will need to take strong steps to maintain growth.

Source: Bloomberg