China PMI in surprise fall, lowest since 2009

Tue Nov 1, 2011 4:24am EDT
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By Zhou Xin and Nick Edwards

BEIJING (Reuters) - China's big manufacturers ran at their slowest pace in October since early 2009, purchasing managers' data shows, though signs of a bounce-back at smaller firms and a sharp fall in factory-gate prices suggest no swift change to interest rates.

China's official purchasing managers' index (PMI) fell to 50.4 in October from 51.2 in September, countering expectations for a rise. The National Bureau of Statistics blamed the drop on weak European and U.S. economies.

A private-sector PMI though set a different direction, rising in October to 51.0 from 49.9 in September, the index's first rise above 50 that demarcates contraction from expansion since June.

Taken together, the PMIs backed the consensus view that Chinese interest rates will remain on hold as Beijing balances a need to tackle inflation with concerns that growth is slowing down.

Instead, more fine-tuning via a policy of so-called selective easing to help specific sectors of industry may be in the pipeline.

"All these signs may give Beijing good reason to adopt kind of selective easing in the monetary policy in the coming months," Tang Jianwei, an economist at Bank of Communications in Shanghai, said.

"We expect the central bank may opt for net injection in the money market operations and may loosen some bank loan curbs in the months ahead. There is also a chance of cutting the reserve requirement ratio for banks in the fourth quarter," Tang said.

It's not unusual for the two indexes to deliver divergent results.   Continued...

<p>A labourer works at a valve factory in Wenzhou, Zhejiang Province October 18, 2011. REUTERS/Carlos Barria</p>