Econintersect: For the second month in a row China’s manufacturing activity contracted in December. The assessment is based on the HSBC Purchasing Manager’s Index which came in at 48.7. Readings below 50 are indicative of contraction. However, the index in December was not as low as the 47.7 reading in November, prompting some to suggest that the decline may be nearing a bottom. After seeing tightening monetary policy for much of the second half of 2011 to fight inflation, the PBoC (People’s Bank of China) recently began easing with a modest decrease in reserve requirements for banks as inflation has come down significantly (GEI News).
There are two reasons that the near future is in doubt. First, some feel that more monetary and fiscal action is needed to assure future growth, as indicated by this excerpt from the Financial Times:
Qu Hongbin, chief China economist with HSBC, warned it was still too early to sound the all-clear and that “more aggressive action on both fiscal and monetary fronts” was needed to shore up growth. “A hard landing should be avoided so long as easing measures filter through in the coming months,” Mr Qu said.
The second reason is that Saturday a spokesman for the PboC, Governor Zhou Xiaochuan, reinforced the “prudent monetary policy will be necessary to “maintain stability,” hardly the language associated with more aggressive action as called for by Mr. Qu. From the Shanghai Daily:
“Systematic financial risks will be effectively prevented to promote the healthy and fast development of the national economy,” Zhou said.
On January 2 an article by EconMatters appearing on GEI Analysis outlined a number of the challenges facing the Chinese economy including the aforementioned manufacturing contraction, declining tax revenues, negative FDI (foreign direct investment) for the first time in more than two years and escalating social unrest (see GEI News).
Note: The Financial Times and Shanghai Daily articles appeared on Econintersect News Asia newspaper page.