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China official manufacturing PMI contracts again in November; falls to 49.6

FXStreet (Mumbai) - The National Bureau of Statistics today stated Chinese official PMI fell to 49.6 in November, the lowest since August 2012. The figures came in below the median estimate of 49.8 arrived at by economists in a Bloomberg survey as well as in the Reuters poll. China's manufacturing activity contracted for the ninth straight month in November, as per the final Caixin/Markit China Manufacturing Purchasing Managers Index. Weak foreign demand continues to weigh on China’s manufacturing sector.

The non-manufacturing PMI on the other hand increased to 53.6 from 53.1 a month earlier in tune with the CPI’s pledge to rebalance the economy towards services. Nomura believes the growth in the service sector was primarily led by online sales over Singles Day on 11 November.

PBoC rate cuts could not spur growth in the manufacturing sector

The manufacturing PMI once again highlighted the sluggishness in economic growth and confirmed that GDP growth rate for the last quarter will remain extremely dissatisfactory. Clearly, Premier Li Keqiang’s goal of achieving 7 per cent expansion for 2015 is now at risk. Six central bank interest-rate cuts since November 2014 could not spur growth in the manufacturing sector. Services sector on the other hand has shown more strength underlining China’s transition to a consumer-led growth model.

The official manufacturing PMI showed a fall in output, new orders, inventories and employment from October. The NBS statement revealed input prices for raw materials in November fell the sharpest this year.

Also, several other private indicators for November showed conditions remained weak for the industrial sector. A gauge based on search engine interest in small and medium-sized businesses also deteriorated in November.

PMI reading for steel industry also falls

A PMI reading for the steel industry declined to 37 in November. According to a recent report by Liu Li-Gang, head of China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong noted that the steel sector is plagued by overcapacity pressures. This sector has also been hit by drop in demand that resulted from slumping property investment.

More easing likely in the pipeline

Deflationary pressures are still found to be rising despite the PBoC cutting rates to inject more funds into the banking system in its effort to boost demand and raise prices.

Qu Hongbin, chief China economist and co-head of Asian economic research at HSBC Holdings Plc in Hong Kong feels it is high time for China “to act in a more decisive and co-ordinated manner to lift confidence and end deflation” as the existing deflation, if not corrected will “exacerbate the debt problem and risk a downward spiral"

The current situation calls for more supportive policy measures. The central bank can be expected to further slash rates in 2016 and the government can be expected to step up fiscal spending.

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