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Chinese manufacturing continues to contract

It is now 11 months in a row that China has seen a contraction in this major sector. The Flash China manufacturing purchasing managers’ index (PMI) produced by the bank HSBC, and eagerly awaited in economic circles, shows that the nine-month low of 47.6 in August, reached 47.8 mid way through September.

Chinese growth continues to slow

The cause for concern is that any figure below 50 shows that the sector is contracting, and anything above 50 shows that there is expansion. It is no surprise that GDP growth has been slipping in China, with six straight quarters of declining growth which reached 7.6% in the June quarter. Official estimates still say that China will achieve 7.5% growth this year, but this compares with a 10.4% growth rate as recently as 2010.

Qu Hongbin, chief economist for China at HSBC, explained the situation by saying: “China’s manufacturing growth is still slowing, but the pace of slowdown is stabilising. Manufacturing activities remain lacklustre, thanks to weak new business flows and a longer than expected destocking process.

China has been particularly hit in export markets by the slowdown in the eurozone and the United States. This is not good news for the west, because high growth and demand in China could help recession-bound countries in the EU to increase export sales and from that domestic investment.

The Chinese government have taken a number of measures to boost the economy. Infrastructure projects amounting to £95bn have been put in place, and there have been cuts in interest rates and the injection of increased liquidity into the money markets. Qu Hongbin said: “The recent easing measures should be working to lead to a modest improvement in the fourth quarter onwards.”

A fair summary is that the economic situation in China is not good by recent standards but  appears not to be getting much worse at the moment.

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Posted in China, economic growth, Manufacturing

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