March 23rd, 2012
01:12 AM GMT
Hong Kong (CNN) – Investors have even more proof that China’s economy is slowing down.
The country’s manufacturing sector shrank for a fifth month in a row, according to HSBC’s latest China PMI survey Wednesday. That follows news of weaker industrial output from January to February.
This news shows that Beijing’s policies to slow down the economy are in fact working. But Premier Wen Jiabao – who’s been the champion of those measures – may now be asking whether they’re working a bit too well.
HSBC’s China Flash PMI came in at 48.1 point for March. Anything under 50 means a contraction. The worrying thing is that this manufacturing index has been under that 50-point mark since November. Not only that, March’s reading is the lowest in four months.
So why this continued contraction?
The same goes for overseas demand, in particular from the West. A good part of that blame lies in Europe, China’s biggest trading partner. HSBC forecasts that Chinese exports to Europe will contract 1% this year.
But Frederic Neumann told World Business Today that China watchers have nothing to fear. Neumann is HSBC’s Managing Director and Co-Head of Asian Economic Research.
“This number is actually still consistent with growth around 8% so we would have to see much worse numbers for us to believe that this is a crash of some sort,” Neumann said.
“By most interpretations this is an intended slowdown by the government which had tight monetary policy last year and is deliberately trying to deflate the property sector. And these are the kinds of results you then get. But I think it’s far too early to talk about a crash in China."
And it’s not just HSBC that’s maintaining its forecast of a “soft” landing for the country. French bank Credit Agricole said the same in a research note out today.
However, both banks are predicting some form of new monetary easing in the next half year – if not earlier – in the form of an interest rate cut or a cut to the capital reserves that China’s banks are required to hold.
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