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China manufacturing shrinks for 5th month

(Agencies)
Updated: 2009-01-03 09:58

China's manufacturing contracted for a fifth month in December as recessions in the US, Europe and Japan sapped demand for exports, a survey showed.

The CLSA China Purchasing Managers' Index stood at a seasonally adjusted 41.2, compared with a record low of 40.9 in November, CLSA Asia-Pacific Markets said on Friday in an emailed statement. A reading below 50 reflects a contraction.

Manufacturers in industries from metals to toys are reducing production or closing down. Aluminum Corp of China Ltd, the nation's biggest maker of the metal, and Yunnan Tin Co, the world's largest producer of tin, cut output as prices fell.

"Chinese manufacturing was very weak in December," said Eric Fishwick, head of economic research at CLSA in Singapore. "With five back-to-back PMIs signaling contraction, the manufacturing sector, which accounts for 43 percent of the Chinese economy, is close to technical recession."

The output index fell to a record low of 38.6 last month from 39.2 in November, while the measure of new orders rose to 37 from 36.1. The index of export orders jumped to 33.6 from 28.2, CLSA said.

"Chinese manufacturers reduced the size of their workforces at the fastest rate recorded by the series to date," the report said. An employment index tracked by CLSA has contracted for five consecutive months to 45.2 in December.

China's economic growth may have slipped to 5.5 percent last quarter, the weakest pace in at least 15 years, according to Shanghai-based Industrial Bank Co.

The economic slide may intensify pressure on the central bank to keep cutting interest rates after five reductions in three months and as the government rolls out a 4 trillion yuan ($586 billion) spending package announced in November.

Central bank Governor Zhou Xiaochuan pledged on Dec 31 to continue a "flexible" monetary policy. Capital Economics Ltd forecasts the key one-year lending rate will fall by at least 81 basis points from 5.31 percent in the first half of this year.

A drastic slowdown in industrial-output growth is mainly due to companies running down excess inventory, central bank Vice-Governor Yi Gang said Dec 26. That process may continue until the end of the second quarter, Yi said.

Exports fell for the first time in seven years in November, imports plunged and industrial output grew at the slowest pace in almost a decade. The government has responded to the deepening slowdown with the stimulus package running through 2010, interest-rate cuts and reductions in export taxes.

It has also stalled the yuan's gains against the dollar since mid-July. A weaker currency helps exporters by keeping down prices in overseas markets.

China needs to boost consumption and prepare more measures to tackle the global financial crisis, the central bank said Dec 31. It reaffirmed a "moderately loose" monetary policy.

The CLSA index, started in 2004, is based on a survey of more than 400 manufacturing companies and tracks changes in output, orders, employment, inventories and prices.