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Last updated: December 1, 2011 6:48 am
Chinese manufacturing activity contracted for the first time in almost three years in November, adding to fears about the health of the global economy.
News of the decline came a day after the US Federal Reserve led a co-ordinated move to ease global liquidity concerns and the Chinese central bank loosened monetary policy.
Chinese government data released on Thursday showed the official purchasing managers’ index fell to 49 in November from 50.4 in October, with a reading below 50 indicating a fall-off in manufacturing. November’s contraction was the first since February 2009.surprise move timed to offset the negative impact of the PMI number, on Wednesday China’s central bank announced a cut in the required reserve ratio – reducing the amount of funds banks must hold back – for the first time in three years.
The reading will add to concerns among policymakers and investors that China is heading for a downturn just as the rest of the world is looking to it as the brightest spot in an otherwise gloomy global landscape.
“The markets have been handed a powerful one-two combo, in the form of a shocking PMI print and an aggressive RRR cut,” said Alistair Thornton, China analyst at IHS Global Insight. “The message is clear: the economy is slowing much faster than expected and the government has stepped into the ring.”
By reducing the amount of deposits banks must hold on reserve by 0.5 percentage points, the central bank effectively injected about Rmb400bn ($63bn) into the banking system.
The growth in China’s trade with the EU and US have slowed in recent months, with exports to crisis-hit Europe most affected. Real estate sales volumes have also dropped sharply, with prices starting to decline. Most property developers appear to be delaying new projects - potentially devestating in a country where real estate construction accounts for about one-quarter of investment and about 13 per cent of GDP.
Most analysts believe more monetary loosening measures will be announced in the coming months, reversing two years of gradual tightening.
Analysts expect figures to show that consumer inflation fell to about 4.3 per cent in November, down from 5.5 per cent in October and a peak of 6.5 per cent in July. But restraining inflation has come at the cost of a steeper than expected drop in economic growth.
The PMI sub-indices for new orders and new export orders fell to their lowest levels in nearly three years, to 47.8 and 45.6 respectively, indicating a sharper contraction as factories cut production and fire workers.
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