China’s manufacturing expanded at a slower pace than estimated in May, prompting stock declines across Asia on concern growth in the world’s third-largest economy may slow.
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.
Premier Wen Jiabao said yesterday in Tokyo that the world needs to guard against the possibility of a second economic slump. China will continue its proactive fiscal policy to consolidate its recovery, Finance Minister Xie Xuren said May 28.
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 today will show U.S. 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. In contrast with investors’ pessimism, Capital Economics Ltd. said this week that the Chinese economy is "gliding to a soft landing."
An output index fell to 58.2 from 59.1 in April, today’s report showed. The new-order index slid to 54.8 from 59.3 and an export-order index dropped to 53.8 from 54.5. The input-price index decreased to 58.9 from 72.6.
The federation also said its average factory employment index for the past three months reached 52.7, the highest since the gauge began in 2005.
While year-on-year economic indicators for May are likely to show slower growth, "all this is telling us is that it is now a year since China’s stimulus started to be felt," said one expert, who added economic momentum “remains strong.”
The expert also said that the official PMI normally falls in May, "a sign that the seasonal adjustment applied is not particularly effective." Nomura Holdings Inc. and Bank of America-Merrill Lynch expressed similar views ahead of today’s data.
The manufacturing index, released by the logistics federation and the Beijing-based National Bureau of Statistics, covers more than 730 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
Chinese policy makers are trimming stimulus this year after the $1.4-trillion U.S. lending binge that revived growth in 2009.
Restraining inflation expectations and keeping housing affordable are two of the government’s key goals after urban property prices jumped a record 12.8% in April from a year earlier. Wuhan Iron & Steel Group, the nation’s third-biggest steelmaker, said May 26 that demand for steel is declining, partly because of curbs on property loans.
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