China’s November Manufacturing Contracts by Record

By Nipa Piboontanasawat

Dec. 1 (Bloomberg) -- China’s manufacturing contracted by the most on record and export orders slumped as a slowdown in the world’s fourth-biggest economy deepened.

The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today in an e- mailed statement.

China’s economy is deteriorating more quickly than expected by the nation’s top planning agency, its chairman, Zhang Ping, said last week. The situation is a test of the Communist Party’s ability to govern, President Hu Jintao said Nov. 29, according to the official Xinhua News Agency.

“November’s PMI shows further signs of an economic slowdown,” Zhang Liqun, a senior research fellow at the State Council’s Development Research Center, said in the statement. Government efforts to revive growth “still need some time to show their full effect, which will be after spring 2009,” Zhang said.

The yuan fell 0.22 percent to 6.8497 against the dollar as of 9:41 a.m. in Shanghai, the biggest decline in more than a month, as the government sought to help exporters.

Export orders, output and new orders all contracted by the most since the survey began in 2005.

Weaker demand for Chinese goods and a slump in construction are undermining growth. China last month announced a $586 billion stimulus package and the biggest interest-rate cut in 11 years to revive the economy and counter the risk of spiraling unemployment and social unrest.

Violent Clash

Sacked workers seeking more compensation from a toy factory in Guangdong province clashed violently with police on Nov. 25.

Baosteel Group Corp., China’s biggest steelmaker, is facing its “most difficult” period since the company was founded 30 years ago as output, sales and profit plunge, an executive said last month.

China’s export orders declined to 29 in November from 41.4 in October, the survey showed. A reading above 50 reflects an expansion, below 50 a contraction.

The output index fell to 35.5 from 44.3, while the index of new orders dropped to 32.3 from 41.7.

China’s economy, the world’s fourth largest, expanded 9 percent in the third quarter from a year earlier, the slowest pace since 2003. This quarter, growth may cool to 4 percent, according to JPMorgan Chase & Co.

The World Bank slashed last week its growth forecast for China to 7.5 percent in 2009 from a 9.2 percent estimate in June. That would be the weakest pace since 1990.

The government-backed Purchasing Managers’ Index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textile, automobile and electronics.

The survey tracks changes in output, new orders, employment, inventories and prices.

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