China Manufacturing Shrinks for 4th Month on Exports

By Kevin Hamlin and Minh Bui

Feb. 4 (Bloomberg) -- China’s manufacturing shrank for a fourth month as exports fell because of the global recession and companies ran down stockpiles of steel, textiles and autos, a government-backed survey showed.

The Purchasing Managers’ Index rose to a seasonally adjusted 45.3 in January, from 41.2 in December, the China Federation of Logistics and Purchasing said today in an e-mailed statement. A reading below 50 indicates a contraction.

A slowdown in the world’s third-biggest economy has already cost the jobs of 20 million migrant workers, increasing the risk of protests and social unrest, the government says. China has “considerable room” to increase a 4 trillion yuan ($585 billion) stimulus package, the International Monetary Fund said yesterday.

“China’s economy is gradually recovering after reaching the bottom,” said Zhang Liqun, an economist at the State Council Development and Research Center. “The economy will be on an upwards trend in the first quarter.”

A measure of export orders rose to 33.7 from 30.7 in December. The output index jumped to 45.5 from 39.4. The new- order index climbed to 45 from 37.3. The measure of unemployment dropped to 43.0 from 43.3.

In November, those indexes all fell to the lowest levels since the survey began in 2005.

Ningbo Sunhu Chemical Products Co., China’s biggest nickel trader, said yesterday that sales slumped after a week-long holiday that ended on Jan. 31 as customers remained closed because of a lack of demand.

‘Pretty Desperate’

“The global nickel industry seems to be pinning much hope on post-vacation Chinese demand, yet we’re feeling pretty desperate right here,” said Kevin Ji, Ningbo’s chief analyst.

Today’s numbers come after a separate purchasing managers’ index, released on Feb. 2 by CLSA Asia-Pacific Markets, showed manufacturing contracted for a sixth month.

Chinese factories’ plummeting demand for materials and parts is hurting suppliers across Asia and the Pacific, helping to send South Korean exports tumbling by a record in January. China’s own shipments fell by the most since 1999.

The government is considering additional steps to boost its economy, the Financial Times reported Feb. 2, citing an interview with Premier Wen Jiabao in London.

Most Asian economies, including China, have room to increase their stimulus measures, Anoop Singh, director of the IMF’s Asia-Pacific department, said yesterday.

Running Down Stock

A survey of 500 Chinese firms in 60 cities in December and early January by Nomura Holdings showed 60 percent had cut inventories to one or two months’ use or sales, down from three to four months, according to Sun Mingchun, a Nomura economist in Hong Kong.

“Our survey suggests a high likelihood of re-stocking activity late this quarter, which may give an unexpected boost to demand for, and production of, raw materials,” said Sun.

China’s economy may bottom out this quarter and then bounce back on government spending and increased bank lending, he said.

Chinese banks may have offered a record 1.2 trillion yuan of new loans in January, the China Securities Journal reported today, citing people it didn’t identify.

Last quarter, gross domestic product grew 6.8 percent, the least in seven years. Sun predicts 8 percent growth this year, which would match the government’s target for creating jobs.

More Optimistic

That’s more optimistic than the IMF’s forecast last week of 6.7 percent, reduced from 8.5 percent amid the likelihood of global growth coming to a “virtual standstill.”

The IMF cut yesterday its 2009 growth forecast for Asia to 2.7 percent from 4.9 percent, and Managing Director Dominique Strauss-Kahn said a “worse outcome cannot be ruled out.”

China’s government has started investing its second allocation of funds from the stimulus package, the official Xinhua News Agency reported yesterday, citing an unnamed planning official.

The government will invest 130 billion yuan, after allocating 100 billion yuan in the fourth quarter of 2008, the official news agency said, citing a National Development and Reform Commission official.

China may enact a stimulus plan for the oil refining and petrochemicals industry before a March gathering of the country’s legislature, an official said yesterday.

Government departments are discussing the proposal, an official at the state-backed China Petroleum and Chemical Industry Association said, declining to be identified because of internal rules.

The PMI is published jointly by the logistics federation and the National Bureau of Statistics. The index is based on a survey of more than 700 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.

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

To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net; Minh Bui in Tokyo at mbui@bloomberg.net