China’s manufacturing expansion slows prompting world markets’ reaction
China’s manufacturing expanded at a slower pace than estimated in May, prompting stock declines across Asia. The Purchasing Managers’ Index fell to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said in an e-mailed statement on Tuesday.
A separate index released by HSBC Holdings Plc. and Markit Economics fell to 52.7, the lowest level in a year.
The figures came as reports showed a drop in property sales in Beijing, Shanghai and Shenzhen, offering signs that the government crackdown on property speculation is having an impact.
The MSCI Asia-Pacific Index, which in May had its biggest monthly drop since 2008 on concern the region’s growth will be hurt by Europe’s crisis, snapped a four-day winning streak.
“The economy may continue to maintain relatively fast growth, but the growth rate may slow” Zhang Liqun, a researcher at China’s State Council’s Development and Research Centre, said in the statement from the logistics federation. “The May PMI may be an indication that the economic rebound is stabilizing.”
“The fall in the headline PMI shown in the May surveys might be an early sign of a slowdown” in China, said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. It “may be exacerbated by euro-area weakness and recent measures from Beijing to rein in the property market.”
The “chances of further policy tightening are fading as a result of events in Europe and a still unfolding correction in the property market,” Ben Simpfendorfer, a Hong Kong-based economist at Royal Bank of Scotland, said before Tuesday’s data. He forecasts rates to stay unchanged this year and the yuan’s dollar peg to remain until at least the end of the third quarter.
Comparable indicators in manufacturing around the world in May are forecast to indicate global output growth has peaked. Australia’s manufacturing growth slowed in May and economists predict reports due on Tuesday will show US manufacturing cooled while Europe’s grew at the same pace as the previous month.
HSBC’s survey, covering more than 400 manufacturing companies, is weighted more toward smaller, privately owned business than the government’s PMI, according to the bank. Readings above 50 for both surveys indicate an expansion.
The central bank has kept the key one-year lending rate at 5.31% and the deposit rate at 2.25% since December 2008 after cuts to counter the financial crisis. The Yuan is trading at about 6.83 per dollar under a policy in place since July 2008 to aid exporters.
The Shanghai Composite Index fell 9.7% in May, the biggest monthly decline since August, on concern the European debt crisis is worsening and the government will step up property measures. The benchmark has declined more than 20% this year.