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China manufacturing index at 11-month low

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(Globalpost/GlobalPost)

A key measure of Chinese manufacturing activity sank to an 11-month low in July, British banking giant HSBC confirmed Thursday, indicating further weakness in the world's second-largest economy.

HSBC said the final reading of its purchasing managers' index (PMI) came in at 47.7 last month, down from 48.2 in June and the lowest since August last year.

The PMI tracks manufacturing activity in China's factories and workshops and is a closely watched gauge of the health of the economy. A reading below 50 indicates contraction, while anything above signals expansion.

It was unchanged from the preliminary result for July announced last week and signals "a deterioration of business conditions for the third consecutive month", the bank said in a release.

"With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment," Qu Hongbin, HSBC's chief economist for China based in Hong Kong, said in the bank's statement announcing the figure.

"Yet this, plus the recent weaker data, has prompted Beijing to introduce more fine-tuning measures, from tax breaks for small companies to increased spending on public housing, railway, energy saving and IT infrastructure areas," he added.

"These targeted measures should boost confidence and reduce downside risks to growth."

Worries over China's economy have intensified this year after an expected rebound has failed to appear. China's economy grew 7.8 percent in 2012 for its worst performance in 13 years.

The economy has weakened further this year, with growth in the April-June period dipping to 7.5 percent, from 7.7 percent in the first quarter and 7.9 percent in October-December.

Separately, China's government announced its own index for July on Thursday, which unexpectedly showed a strengthening in activity.

The official PMI rose to 50.3 last month from 50.1 in June, according to the National Bureau of Statistics.

The two surveys often differ to some degree. Economists at Bank of America Merrill Lynch cited sampling and timing differences for the divergence, saying HSBC's survey was more weighted towards small exporters while the official one looks to larger companies.

Sentiment in the latter part of the month, when the official survey was carried out, was likely to have been positively influenced by recent comments by Premier Li Keqiang that the government will try to realise its 2013 economic growth target of 7.5 percent, they added.

But other economists said the difference was harder to explain.

"We believe this divergence reflects the high level of uncertainty over China's growth outlook, although it is unclear why it emerged," Zhang Zhiwei, economist at Nomura International in Hong Kong said in a report.

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http://www.globalpost.com/dispatch/news/afp/130801/china-manufacturing-index-at-11-month-low