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Surveys show Chinese manufacturing slowing in May

By Elaine Kurtenbach
AP Business Writer / May 31, 2012
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SHANGHAI—China's manufacturing weakened in May, surveys released Friday show, adding urgency to Beijing's efforts to prevent economic growth from slowing too quickly.

The European debt crisis is pinching China's export manufacturers, while moves to control property prices have chilled spending on construction. Some analysts said the surveys suggest China's economic growth will fall below 8 percent in the second quarter.

That's still high by Western standards but a weak performance for China compared with years of double-digit growth and might reduce its appetite for imports from countries that have become increasingly reliant on Chinese demand.

The state-affiliated China Federation of Logistics and Purchasing said that its purchasing managers index, or PMI, fell 2.9 percentage points to 50.4 percent in May, just above the 50 level that signifies expansion. The index was at 53.3 in April and 53.1 in March.

HSBC's index, which is adjusted for seasonal conditions and is more weighted toward export manufacturers, fell to 48.4 in May from 49.3 in April. The index has remained below 50 since October.

Factory output was the weakest in three months and the reduction in jobs was the sharpest in more than three years, HSBC said. New orders for both domestic and export business fell due to "muted global demand."

HSBC economist Qu Hongbin said the figures point to a "continuous slowdown of the real economy."

The federation's survey showed new orders weakening more than 4 percentage points, while inventories rose and prices softened due to weaker demand.

The slowdown was most apparent in the autos, furniture and equipment industries, the federation said. It also noted weakness in western and central parts of China that had been expected to drive growth as industries shifted production inland in search of lower labor costs.

"The current short-term decline does not mean the economy has entered a contraction," said the report on the federation's web site. "While it is weaker, the focus is on developing the economy for the better."

"The downturn trend should stabilize thanks to fine-tuning of economic policies to help support investment," it cited Zhang Liqun, an analyst with the federation, as saying.

Analysts at ANZ Bank said growth might fall below 8 percent in the second quarter.

"Monetary policy easing and faster implementation of fiscal policy must start in earnest," they said in a report.

China is moving cautiously with its recently launched "mini-stimulus" plan, mindful of the painful hangover of inflation and debt from its 4 trillion yuan ($586 billion) avalanche of spending in response to the 2008 global crisis.

Measures announced in recent weeks include 66 billion yuan ($10 billion) to build affordable housing, a policy priority aimed at redressing the frustrations of ordinary families who are being priced out of the housing market in many cities.

In what it calls a targeted approach, it also has approved plans to push development of seven emerging industries including clean energy as it tries to restructure the economy and boost growth.

The Cabinet has said it approved plans to launch 20 "major projects" for emerging industries but gave no details of what support they might receive. Previous technology development efforts have included subsidies, tax breaks and other support that trading partners including the United States complained violated free-trade principles.

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