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China Factory PMI Edges Up; Still Points To Contraction In Activity

China Factory PMI Edges Up; Still Points To Contraction In Activity

An indicator of China's manufacturing performance rose marginally in September from August's nine-month low, but continued to suggest deterioration in activity with production falling at the fastest pace in ten months.

Flash results of a survey by Markit Economics and HSBC revealed Thursday that the purchasing managers' index (PMI) rose to 47.8 in September from 47.6 in August. A PMI reading below 50, however, suggests contraction of the sector.

The manufacturing output index, meanwhile, dropped to a 10-month low of 47 in September from 48.2 in August. Both new orders and new export orders continued to contract in September. However, the rate of decline was slower than in August.

Employment at manufacturing firms fell again in September, albeit at a slower pace. Price pressures remained low during the month. Both input and output prices declined in September, but at a slower pace compared to August.

"China's manufacturing growth is still slowing, but the pace of slowdown is stabilising," HSBC chief economist Hongbin Qu said. "Manufacturing activities remain lackluster, thanks to weak new business flows and a longer than expected destocking process."

Hongbin noted that this is adding more pressures to the labour market and has prompted Beijing to step up easing over the past weeks.

The weak manufacturing data comes amid a gloomy trade performance. Official data last week revealed decline in imports and a weaker growth of exports in August. China introduced a slew of measures recently to stabilize export growth, including faster payment of export tax rebates and boosting loans to exporters.

Ministry of Commerce spokesperson Shen Danyang said Wednesday that China is likely to face weaker external demand during the rest of 2012. According to Shen, this can be attributed to higher export costs, unfavorable trading environment and waning external demand caused mainly by the worsening crisis in the Eurozone.

Earlier this month the government approved a number of infrastructure projects worth more than CNY 1 trillion in an effort to stimulate growth. The economy grew 7.6 percent in the second quarter, the weakest pace since the first quarter of 2009.

The People's Bank of China cut interest rates in June and July amid significant slowdown in economic activity. The bank has lowered the reserve requirement ratio three times since November 2011.

by RTT Staff Writer

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