China's PMI falls below 40% in November

XinHua News
China's PMI falls below 40% in November
2008-12-01 11:12:25

By Xinhua writers Jiang Xufeng and Li Baojie

BEIJING, Dec. 1 (Xinhua) -- The Purchasing Managers' Index (PMI) of China's manufacturing sector dropped to 38.8 percent in November, down 5.8 percentage points from October, China Federation of Logistics and Purchasing (CFLP) told Xinhua on Monday.

It was the index's lowest point since the CFLP initiated the survey with China's National Bureau of Statistics in 2005.

It was also the fourth time China's PMI declined below 50 percent within this year, which reflected the country's economy had further contracted, analysts said.

The PMI included a package of indices used to measure a country's monthly economic performance. China's PMI was conducted on the base of surveys directed at purchasing and supply managers of more than 700 manufacturers across the country.

A reading above 50 percent suggests expansion, while one below 50 percent rings alarm for economic slowdown.

Index measuring new orders dropped to 32.3 percent in November, down 9.4 percentage points from October. That of new orders for export eased to 29 percent, trimming 12.4 percentage points from the previous month.

Of the 20 industries involved in the PMI calculation, only the tobacco industry registered a new orders index above 50 percent in November, while that of non-ferrous metal smelting, petrochemical and other industries was under 20 percent last month, the CFLP said in an email statement.

Zhang Liqun, a researcher with the Development Research Center of the State Council, China's Cabinet, said the PMI decline indicated the decelerating trend of Chinese economy.

However, Zhang said that "the government had taken a string of macro-management policies in an active manner and it would take some time for the effects to surface."

China unveiled an economy stimulus package last month with a total of four trillion yuan (583.4 billion U.S. dollars), equivalent to nearly 78 percent of last year's national fiscal revenue, to be invested in the next two years to boost domestic demand and improve people's livelihood.

The People's Bank of China (PBOC), the central bank, said it would cut the benchmark one-year yuan lending rate to 5.58 percent from 6.66 percent and the one-year yuan deposit rate to 2.52 percent from 3.60 percent.

It was the fourth interest rate cut since mid-September. It also was the largest cut since October 1997, when the PBOC slashed the one-year rate by 1.44 percentage points to support growth amid the Asian financial crisis.

Zhang predicted that once the policies took effect after the spring next year, China's economy would embark on a relatively fast growth track.

Editor: Zheng E

Latest Updates
2 December 2008

CNBC
Trouble in China
Posted By:Larry Kudlow

The real source of today’s stock market plunge is a collapse of China’s purchasing managers index, which fell to 40.9 in November from 45.2 in October, its fourth straight monthly drop. Inside the index, export orders fell significantly. All of this suggests big cuts in China production, employment, and investment, including infrastructure investment.

Over dinner last week, economic Nobelist Robert Mundell, who advises the Bank of China and travels there every other month, told me the Chinese economy is in bad shape. As a bulwark for the global economy, the China card is fast turning unreliable. Not only are stocks falling everywhere else in response to this disappointing China news, but commodity prices like palladium, silver, gasoline, oil, and gold are all plummeting today. I’ve only seen one news story that reported on this China economic decline, but I’m convinced it’s the main factor behind the U.S. stock drop.

Meanwhile, China’s yuan is starting to depreciate, a development that may be a function of their weakening economy, but also may be a policy change by the Bank of China toward devaluation, rather then appreciation.

I’d like to reiterate my support for Mr. Mundell’s idea for a 1-year tax holiday on U.S. corporate profits, then segueing to a 20 percent marginal tax rate on U.S. business from the current 35 percent rate. It is business, not government, that creates economy-growing jobs. Although U.S. profits have slipped (IRS/NIPA profits after tax have dropped 9 percent from their peak in late 2006), they still totaled $1.5 trillion thru the end of the 3rd quarter. After tax, that’s $1.1 trillion.

So, with roughly a $400 billion tax bill at stake, a tax-free holiday would provide a big pool of cash for U.S. business recovery. And a lower marginal tax rate after that would make it pay more after tax to invest in businesses. The Mundell tax cut recovery plan is especially important now that the NBER has just officially declared a recession beginning in January.

Once again, I repeat, government cannot spend our way into prosperity. However, strengthening incentive rewards would boost the animal spirit of investors and businesses to put risk money back to work. This would produce economic recovery.

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