China Manufacturing Contracts as Crisis Trims Exports

By Li Yanping and Wang Ying

Nov. 1 (Bloomberg) -- China's manufacturing contracted as the worst financial crisis since the Great Depression eroded export demand.

The Purchasing Managers' Index fell to a seasonally adjusted 44.6 last month from 51.2 in September, the China Federation of Logistics and Purchasing said today in an e-mailed statement. That was the lowest since the gauge was launched in July 2005. A reading below 50 reflects a contraction, above 50 an expansion.

China's cabinet has pledged extra infrastructure spending to stimulate the world's fourth-biggest economy amid the global slowdown. The government has already lowered rates three times in the past two months, increased export rebates and cut property transaction taxes.

``The government needs effective stimulus measures to spur growth,'' said Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. ``The external economic outlook is worsening rapidly.''

Manufacturing contracted in July for the first time since the survey began in 2005. It also shrank in August. The October index was a record low.

China's economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned. The expansion cooled for a fifth straight quarter, to a 9 percent gain from a year earlier.

Global Slowdown

Chinalco Luoyang Copper Co., a Chinese processor of the metal, said orders fell 20 percent in the third quarter as domestic and international demand weakened.

The global slowdown is curbing demand for the nation's goods. The International Monetary Fund estimates that advanced economies will expand 0.5 percent next year, the slowest pace since 1982.

Falling property sales and prices in major cities are another drag on China's growth.

The index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobiles and electronics.

The output index fell to 44.3 in October from 54.6 in September, while the index of new orders dropped to 41.7 percent from 51.3. The index of export orders declined to 41.4 percent from 48.8, the statement said.

The inventory index climbed to 51.4 from 50.5, it said.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net; Wang Ying in Beijing at ywang30@bloomberg.net