BEIJING--There was more evidence of weakness in China's huge
manufacturing sector in December, a soft end to the year that
suggests the country will likely miss its 2014 economic growth
target.
The government's official manufacturing Purchasing Managers
Index, a gauge of conditions in the industry, slipped to 50.1 in
December from 50.3 a month earlier, the National Bureau of
Statistics said Thursday---the lowest reading in a year and a half.
Any number above 50 indicates expansion, but the pace of growth is
now marginal.
A competing index released on Wednesday by HSBC and research
firm Markit dropped to 49.6 in December, from 50.0 the previous
month.
"China's manufacturing sector, especially those industries
related to the property market, is still struggling," said Li-Gang
Liu, an economist at ANZ Bank. "China is entering a "new normal"
economy."
There was a small recovery in export orders, according to the
official PMI, with that subindex rising to 49.1 from 48.4, but new
orders overall fell to 52.2 from 52.5. That suggests China's
domestic demand is softening. A stalling housing market has had a
knock-on effect on manufacturers in many industries, from
construction machinery to furniture.
Both PMIs also indicated that wholesale prices for raw materials
and manufactured goods continued to fall, with the official PMI
subindex for raw material prices dropping to 43.2, the lowest
figure for 2014.
China's manufacturing sector has suffered from deflation for
almost three years, because of a combination of excess factory
capacity at home and falling prices for raw materials on global
markets. While companies benefit from lower input prices, deflation
also makes it harder for them to repay their loans.
"We believe that weaker economic activity and stronger
disinflationary pressures warrant further monetary easing in the
coming months," said Hongbin Qu, HSBC's chief economist for
China.
China's central bank cut benchmark interest rates to by a
quarter of a percentage point to 2.75% in November, the first
interest rate move since 2012.
Despite this and other small stimulus measures, including a
pickup in the pace of spending on railway construction, most
economists believe China will fall short of its 7.5% economic
growth target for 2014. Growth in the third quarter came in
modestly below-target at 7.3%.
Officials have stressed that the target is an approximate one,
and that they will tolerate slightly slower growth without
resorting to the large-scale stimulus that China enacted in
response to 2008 financial crisis.
The economic growth figures for 2014 are scheduled to be
released on Jan. 20, with this year's target to be published in
March. If China fails to achieve its growth target, it would be the
first in more than a decade and could prompt policy makers to lower
the target for 2015, economists said.
Write to Richard Silk at richard.silk@wsj.com
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