China factory activity slides to five month low

01 Nov 2014


China's factory activity was down unexpectedly to a five-month low in October as firms fought a slowdown in orders and increasing costs in the cooling economy, reinforcing views that the country's growth outlook was hazy at best, Reuters reported.

The official Purchasing Managers' Index (PMI) eased to 50.8 in October from September's 51.1, according to the National Bureau of Statistics, but above the 50-point level that separated growth from contraction on a monthly basis.

The PMI also showed foreign and domestic demand slid to five- and six-month lows respectively, with overseas orders contracting slightly on a monthly basis.

There remained downward pressure on the economy, and monetary policy would remain easy, according to economists at China International Capital Corp, in a note to clients after the data.

Noting that inventory levels of unsold goods increased last month even as factories cut output levels and drew down on stocks of raw materials, the investment bank argued demand in the economy was still tepid.

The country' economy had been through a tough year with growth falling to 7.3 per cent in the third quarter, its lowest level since the 2008/09 global financial crisis. Also the housing market sagged and domestic demand and investment stalled.

Zhang Liqun, analyst at The China Federation of Logistics and Purchasing said in a report, that the small decline in the October PMI figure showed that economic growth still faced a certain amount of downward pressure, AP reported.

He added new government growth stabilising policies unveiled in the third quarter were starting to have an effect in the real economy and would soon start to impact on PMI figures.

Zhang said, according to the forecast, PMI figures would not be trending downward in the long-term, nor would economic growth be trending downward in the long term.

Chinese leaders had expected full-year economic growth to fall short of their 7.5 per cent target, but that would be considered acceptable as long as inflation stayed low and the economy continued to produce jobs.

The World Bank had warned that growth could decline to close around 7 per cent next year, saying Beijing needed to promote competition and efficiency by labour reforms and real estate markets along with its state-run financial system.

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