Chinese Manufacturing Contracts

Second monthly decrease in a row reflects weaker external demand.

China’s manufacturing contracted for a second month in December as global growth faltered and Premier Wen Jiabao prolonged a crackdown on speculation in the housing market.

The index was 48.7 in December, HSBC Holdings Plc and Markit Economics said today. That compared with a preliminary result of 49 reported on Dec. 15 and a final reading of 47.7 for November. A reading above 50 indicates expansion.

The central bank may cut lenders’ reserve requirements before a Lunar New Year holiday starting Jan. 23 that will fuel demand for cash, according to Bank of America Merrill Lynch. Last month’s half percentage-point reduction, the first since 2008, indicated that the government is putting a bigger focus on supporting growth as inflation cools.

“Weakening external demand is starting to bite,” said Qu Hongbin, a Hong Kong-based economist for HSBC. Policy easing may enable the world’s second-biggest economy to avoid a “hard landing,” he said.

The Shanghai Composite Index was up 1 percent as of 10:37 a.m. local time, buoyed by signs of strength in the U.S., after the world’s largest economy reported rising home sales. The gauge has fallen about 22 percent this year, the most since 2008, on concern that slowing growth will erode profits.

In November, China’s export growth was the weakest since 2009, excluding seasonal distortions at the start of each year, as Europe’s debt crisis capped demand.


Shanghai, Beijing

Developer China Vanke Co.’s contract sales dropped 36 percent last month from a year earlier, while new home prices in Shanghai, Beijing, Shenzhen and Guangzhou slid from the previous month.

In a sign that construction projects are slowing, Hitachi Construction Machinery Co., Japan’s second-largest heavy- equipment maker, said this month that Chinese demand for excavators will decline in the first half of next year.

The purchasing managers’ index is based on data compiled from questionnaires sent to purchasing executives at over 400 manufacturing companies. The statistics bureau and the China Federation of Logistics and Purchasing will release a separate manufacturing index on Jan. 1. Last month, that gauge showed the first contraction since February 2009.

Inflation slowed to 4.2 percent in November, the slowest pace in 14 months. Third-quarter economic growth of 9.1 percent was the least in two years.


Bloomberg News


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