China Factory Index Decline Adds to Li’s Growth Headwinds

A Chinese manufacturing gauge fell to an eight-month low in February, adding to headwinds forgrowth as Premier Li Keqiang prepares to map out the government’s economic strategy to the nation’s legislature. The Purchasing Managers’ Index (CPMINDX) was at 50.2, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compared with January’s 50.5 reading and the 50.1 median analyst estimate in a Bloomberg News survey. A number above 50 signals expansion. Today’s data underscore the challenges facing the government as it tries to sustain expansion above Li’s 7 percent bottom line while implementing policies to rein in credit and overcapacity. The yuan’s biggest decline on record against the dollar in February may add to investor concerns that the economy is vulnerable to financial risks even as Communist Party leaders this week pledged to keep growth within a “reasonable range.” “The slowdown in manufacturing growth is due to a deceleration in investment, especially of credit-sensitive infrastructure and real-estate investment,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong. “But there’s no need to become overly concerned -- the government has the policy space it needs to ensure its bottom line on growth this year while retaining financial stability.” China’s benchmark stock index slumped 2.7 percent this week, the biggest drop in seven weeks, amid concerns economic expansion will ease as banks curb lending and a weaker yuan spurs capital outflows.

Record Decline

The Chinese currency slid as much as 0.9 percent yesterday, the largest decline since China unified official and market exchange rates in 1994, according to data compiled by Bloomberg. The yuan lost 1.3 percent in February, the biggest monthly drop on record, fueled by speculation the central bank will widen the currency’s trading band to allow greater volatility at a time when economic growth is slowing. The PMI is based on responses to questionnaires sent to purchasing executives of 3,000 companies. Estimates in a Bloomberg survey of 33 analysts ranged from a reading of 49.5 to 51.5. A gauge of output slipped to 52.6 in February from 53 the previous month, while a subindex of new orders dropped to 50.5 from 50.9, today’s data showed. A measure of new export orders had a below-50 reading for the third straight month, indicating a contraction.

Second Contraction

The PMI for large companies fell to 50.7 from 51.4 the previous month. The gauges for small and medium-sized enterprises showed a contraction, in line with the preliminary reading of a separate manufacturing gauge released Feb. 20 by HSBC Holdings Plc and Markit Economics. HSBC’s Flash PMI, which is weighted more toward smaller companies, fell to 48.3 from January’s final reading of 49.5. If confirmed on March 3, it will be the lowest figure in seven months and the second straight below-50 reading. China’s economic expansion will probably ease this year to 7.5 percent, the weakest pace since 1990, according to the median analyst estimate in a Bloomberg survey carried out from Feb. 14 to Feb. 19. Kuijs said he may revise down his 2014 economic growth forecast of 8.2 percent if the slowdown intensifies. BlueScope Steel Ltd. (BSL) Australia’s biggest steelmaker with 32 offices in China, said demand for industrial buildings and construction products is slumping in the world’s second-largest economy. Steel shipments from BlueScope’s engineered buildings unit fell 7 percent in China in the six months to December compared while volumes across Asia rose 10 percent, the company said in a Feb.24 statement. Source :   http://www.bloomberg.com/news/2014-03-01/china-manufacturing-index-declines-to-lowest-in-eight-months.html