China's factories falter, pro-growth policies eyed

Fri Dec 30, 2011 4:08am EST
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By Kevin Yao

BEIJING (Reuters) - China's factory activity shrank again December as demand at home and abroad slackened, a purchasing managers' survey showed on Friday, reinforcing the case for pro-growth policies to underpin the world's second-largest economy.

The People's Bank of China is widely expected to lower its requirement for the amount of cash banks must hold as reserves to let lenders inject more credit into the economy to fight headwinds from Europe's debt crisis and sluggish U.S. demand.

The HSBC Purchasing Manager's Index, designed to preview the state of Chinese industry before official output data are published, inched up to 48.7 in December from a 32-month low of 47.7 in November, but fell short of the flash reading of 49.

The HSBC PMI has been mostly under 50, which demarcates expansion from contraction, since July.

"While the pace of slowdown is stabilizing somewhat, weakening external demand is starting to bite," said Qu Hongbin, China economist at HSBC.

"This, plus ongoing property market corrections, adds to calls for more aggressive action on fiscal and monetary fronts to stabilize growth and jobs, especially with prices easing rapidly."

He said China would avoid a hard economic landing so long as policy easing measures filtered through in coming months.

HSBC believes a PMI reading of as low as 48 in China still points to annual growth of 12-13 percent in industrial output.   Continued...