China factory sector shrinks most in 32 months

Wed Nov 23, 2011 10:28am EST
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By Koh Gui Qing

BEIJING (Reuters) - China's factory sector shrank the most in 32 months in November on signs of domestic economic weakness, a preliminary PMI survey showed, reviving worries that China may be slipping toward a hard landing and fuelling fears of a global recession.

The steep fall in the HSBC flash purchasing managers' index (PMI) to 48 in November from 51 in October largely reflected domestic weakness as both output and new orders shrank even as export orders continued to grow.

The flash PMI, the earliest readout of China's industrial activity, was the lowest since March 2009 and suggests the factory sector contracted during the month. A PMI reading of 50 demarcates expansion from contraction.

The PMI unnerved financial markets already roiled by the euro zone debt crisis and a downward revision in U.S. economic growth and underscored expectations that Beijing will lean more on policies to support growth than ones to fight inflation.

"They are not going to want this to go too far," said Tim Condon, head of Asia research at ING in Singapore. "I'm not sure if it (PMI) is a tipping point but I think it adds to the evidence."

Beijing has already announced some selective steps, geared to small business, to support the economy. HSBC said evidence in the PMI of a sharp drop in inflationary pressures meant Beijing had room for more selective measures if need be.

"There remains no need to panic," HSBC economist Qu Hongbin said. "Easing inflation provides room for more easing measures, which will keep China on track for a soft landing."

The sub-indexes for input and output prices dropped around 10 points each to below 50 to lows last seen in April 2009.   Continued...