Chinese Manufacturing Shrinks by Record, Survey Shows

By Nipa Piboontanasawat

Nov. 3 (Bloomberg) -- China's manufacturing contracted by the most on record last month as the global financial crisis cut demand for exports, a second survey showed.

The CLSA China Purchasing Managers' Index fell to a seasonally adjusted 45.2 in October from 47.7 in September, CLSA Asia-Pacific Markets said today in an e-mailed statement.

A government-backed survey released on Nov. 1 also showed a record contraction, adding to concern that the world's fastest- growing economy may slump. Australia reported today that manufacturing shrank by the most since data began in 1992 as the crisis rips across Asia Pacific.

``The very sharp fall in the October PMI confirms that China is more integrated into the global economy than ever,'' said Eric Fishwick, head of economic research at CLSA in Singapore. ``Chinese manufacturers are seeing their order books cut, both at home and abroad, as the world economy falls into recession.''

The output index fell to 43.4 in October from 46.7 in September, while the index of new orders declined to 43.8 from 45.8. The index of export orders dropped to 44.3 from 45.9, CLSA said.

Tom Albanese, chief executive officer of mining company Rio Tinto Group, said yesterday that China's slowdown is deepening and demand for metals won't rebound until 2009. The nation's economy expanded in the third quarter at the slowest pace since 2003, growing 9 percent.

Social Stability

China must maintain ``stable and relatively fast'' growth to create jobs and safeguard social stability, Premier Wen Jiabao wrote in the Nov. 1 issue of Qiushi, a Communist Party magazine.

The central bank has cut borrowing costs three times in the past two months, reduced the proportion of deposits lenders must set aside as reserves and stalled currency gains to protect jobs and stimulate growth.

It has also removed temporary controls over loans, the official Xinhua News Agency reported Nov. 1.

``It's a very tough time for Chinese manufacturers as they face falling orders from both external and domestic sides,'' said Wang Qian, an economist at JPMorgan Chase & Co. in Hong Kong. ``The government is likely to take more measures to help businesses during the global slowdown, including more interest- rate cuts.''

China's cabinet has pledged extra infrastructure spending and the government has also cut export taxes to protect makers of textiles and toys.

The CLSA index, started in April 2004, is based on a survey of more than 400 manufacturing companies. The survey tracks changes in output, new orders, employment, inventories and prices. A reading above 50 reflects an expansion in business activity and a reading below 50 indicates a contraction.

The government-backed purchasing managers' index fell to 44.6 in October, the lowest level since the data began in 2005, from 51.2 in September.

To contact the reporter on this story: Nipa Piboontanasawat in Hong Kong at npiboontanas@bloomberg.net