By Bloomberg News - Jun 4, 2012 7:58 AM GMT+0700
China’s non-manufacturing industries expanded at the slowest pace in more than a year, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated.
The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.
Non-manufacturing industries, including construction, account for about 40 percent of China's economy. Photographer: Nelson Ching/Bloomberg
June 4 (Bloomberg) -- Alistair Thornton, a Beijing-based economist with IHS Global Insight, talks about the outlook for China's economy and central bank monetary policy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
The report adds to evidence of slower growth in the world’s second-biggest economy as Europe’s debt crisis crimps overseas demand and government curbs on real estate feed through to more industries. A Chinese manufacturing index had the weakest reading in five months in May, federation data last week showed, helping push Brent crude below $100 a barrel for the first time in almost eight months.
“The data reinforce the message that the slowdown has spread from the manufacturing sector to the services sector,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore. “The current slowdown is more complicated to read than the 2008 global financial crisis and is stressing the authorities’ vaunted fine-tuning skills.”
Service industries now account for 43 percent of the economy, the federation said in yesterday’s statement. That compares with almost 90 percent in the U.S. Under China’s current five-year plan, the government aims to raise the share of services in gross domestic product to 47 percent by 2015, according to a Xinhua news agency report on May 28.
Government Support
U.S. and European (SXXP) stocks fell for the fourth week in five as weaker-than-estimated manufacturing output in the U.S. and China plus record unemployment in the euro area heightened concerns the global economy is slowing.
The benchmark Shanghai Composite Index rose for the first time in four weeks on speculation the government will take steps to boost the economy after a manufacturing PMI compiled by the statistics bureau and logistics federation expanded at the slowest pace since December.
The 50.4 reading for May was barely above the 50 mark that divides expansion from contraction and compared with a 52.0 median estimate in a Bloomberg News survey of 27 economists. A separate gauge from HSBC Holdings Plc and Markit Economics released the same day showed a seventh straight contraction, the longest since the global financial crisis.
Weak Momentum
The manufacturing surveys present “clear signs of weak economic growth momentum,” China International Capital Corp. analysts led by Beijing-based Peng Wensheng said in a June 1 note. “The National Development and Reform Commission has recently expedited project approvals but whether this can effectively stabilize investment and GDP growth still depends on monetary and credit policies.”
The economists forecast two to three more cuts in banks’ reserve requirements this year and estimate a reduction in benchmark lending rates is likely “in the near term.”
Premier Wen Jiabao and the State Council, or Cabinet, warned last month that the economy faces increasing downward pressure. They pledged to put a greater focus on growth and “actively” raise domestic demand.
The government announced new subsidies to boost sales of energy-saving household appliances including refrigerators and washing machines after the expiry of a previous program last year. Gome Electrical Appliances Holding Ltd. (493), China’s second- biggest electronics retailer, said May 25 its first-quarter net income slumped 88 percent from a year earlier as the end of the incentives led to a drop in consumer demand.
Growth Slowdown
The government is also stepping up approvals for infrastructure and corporate investment projects to counter the economic slowdown that Credit Suisse Group AG estimates will push growth down to 7 percent or “slightly below” this quarter compared with a year earlier. Expansion moderated to 8.1 percent in the first three months of the year, the fifth straight quarterly slowdown.
The National Development and Reform Commission said on May 25 it gave Baosteel Group Corp., the parent of China’s largest listed steelmaker, approval for an $11 billion plant more than seven years after the project was conceived.
Inflation indicators in both the non-manufacturing and manufacturing PMIs declined in May, giving policy makers more room to implement stimulus to combat the slowdown. Consumer prices rose 3.4 percent in April from a year earlier, below the government’s 4 percent target for 2012 for the third month.
‘Obvious’ Decline
A gauge of input prices in yesterday’s survey fell to 53.6 from 57.9 in April, while an index measuring prices charged for goods contracted, showing a below-50 reading for the first time this year, according to a statement from the statistics bureau. The official manufacturing PMI showed input prices contracting for the first time since December.
The “obvious” decline in prices “could take some pressure off inflation,” Cai Jin, a federation vice chairman, said in a statement.
The non-manufacturing PMI is based on a survey of about 1,200 companies covering 27 industries including construction, transport and telecommunications. The federation and statistics bureau started publishing a seasonally adjusted index for the non-manufacturing PMI from the March survey, and revised readings back to March 2011.
A separate services industries gauge will be released by HSBC and Markit tomorrow.
To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Bloomberg News in Beijing at xzhou68@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net
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