China industrial activity shrinks in December, calls grow for more stimulus

Tue Dec 16, 2014 3:25am EST
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BEIJING (Reuters) - Activity in China's factory sector contracted in December for the first time in seven months, the latest in a string of weak economic indicators that will intensify calls for more stimulus measures to head off a hard landing.

The flash HSBC/Markit manufacturing purchasing managers' index(PMI) fell to 49.5 in December from November's final reading of 50.0 and below the 50.0 forecast by analysts.

The new orders sub-index fell to 49.6, the first contraction since April. A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis.

"The manufacturing slowdown continues in December and points to a weak ending for 2014," Hongbin Qu, chief economist for China at HSBC, said after the survey was released on Tuesday.

"The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months."

However, while economists have continued to call for more easing, others question whether another round of easy credit is what China needs, given the country is still struggling to work off a mountain of bad debt and manufacturing overcapacity engendered by the last round of policy easing in 2009.

"We expect policymakers to respond to the continued weakness with further rate cuts and liquidity injections," wrote Julian Evans-Pritchard at Capital Economics in Singapore.

"That said, we think that those expecting a policy-driven rebound in growth next year will be disappointed."

Economists have noted that a surprise interest rate cut by the central bank on Nov. 21 has yet to result in lower financing costs, although the cut, combined with a quiet relaxation of loan restrictions beginning in October, did appear to have translated into a surge in loans in November.   Continued...

An employee works at a machine manufacturing factory in Huaibei, Anhui province, September 1, 2014. REUTERS/Stringer