China September factory activity edges up but employment shrinks

Tue Sep 23, 2014 3:53am EDT
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By Jake Spring

BEIJING (Reuters) - China's manufacturing sector unexpectedly picked up some momentum in September even as factory employment slumped to a 5-1/2-year low, a potential source of worry for Communist leaders who prize social stability above all else.

Signs of a weakening labor market reinforced expectations that China would further relax financing conditions in coming weeks, but stop short of cutting interest rates or loosening the reserve requirement for all banks to support the economy.

The HSBC/Markit Flash China Purchasing Managers' Index (PMI) rose to 50.5 in September from August's final reading of 50.2.

Economists polled by Reuters had expected factory growth to stall at 50.0, the mark which separates expansion from contraction, citing deteriorating business confidence and the growing drag from the cooling property market.

"We believe liquidity conditions will be easy," said Ting Lu, an economist at Bank of America-Merrill Lynch. "But we don't expect a universal cut in interest rates or the reserve requirement ratio."

Instead, policymakers are likely to lower select lending rates such as mortgage rates, and the central bank may extend more loans to big banks with the cash being re-lent to businesses under a "re-lending" exercise, Lu said.

Economists' bets that there would be no overt policy easing are in line with remarks by senior leaders such as Finance Minister Lou Jiwei, who said over the weekend that China would not dramatically alter its policy based on any one indicator.

But the government's promises to desist from ramping up credit supply are increasingly being tested by a run of data showing that the world's second-biggest economy is sliding into a deeper slowdown.   Continued...

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