CHINA’S MANUFACTURING sector contracted in February for the seventh consecutive month, but the pace of shrinkage slowed, prompting very slight optimism backed with a major dose of caution, amid signs that the rise in employment may be slowing.
The CLSA China Purchasing Managers Index came in at 45.1 in February, compared with 42.2 in January. The index fell to a record low of 40.9 in November. An index reading below 50.0 indicates contraction. An employment component of the index rose to 46.6 from 45, its first increase in seven months.
This was the third month in a row that the index came in higher than the month before, but economists, and China’s leaders, are unwilling to say the economy is rebounding just yet.
China grew at its slowest pace in seven years in the fourth quarter of 2008, with imports and exports both down drastically as the global economy slips into recession. And the news from the region is still downbeat – Japan’s factory output plunged a record 10 per cent in January and Hong Kong’s exports fell by the most in 50 years.
In the week when China’s annual parliament – the National People’s Congress – meets, premier Wen Jiabao has warned that the slowdown was spreading, although he said the government’s four-trillion-yuan (€464 billion) stimulus plan was beginning to have an effect by boosting consumption and with banks lending more.
“The government’s measures to tackle the financial crisis have shown preliminary results,” Mr Wen said during his first online chat with the public on the government’s website at the weekend.
Beijing would provide more funding from the public coffers “whenever necessary” to stimulate the economy. “We must understand that the crisis will be prolonged and arduous. We must be ready to take more forceful measures at any time to alleviate damage the crisis may do,” said Mr Wen, who will deliver his annual government work report on March 5th at the opening of the National People’s Congress in Beijing. He is expected to announce increased welfare payments to boost consumption.
Economic data this year has been distorted by the Lunar New Year holiday and economists are waiting for February output data and other indicators to get a clear reading of where the Chinese economy stands. A strong performance by the Chinese economy would be a welcome boost for the rest of the world, which is desperately seeking some kind of positive signal to kick-start investment and improve sentiment.
The new export orders index rose to 39.5 in February from 36.3 in January and an all-time low of 28.2 in November.
“While the early signs of economic stabilisation are encouraging, it remains to be seen if this uptrend is sustainable,” JP Morgan China Equities Chairman Jing Ulrich said in a note to investors.
