China’s manufacturing activity hits a 32-month low

In November manufacturing activity in China posted its biggest drop since March 2009, according to a preliminary index released Wednesday by the bank HSBC, which could prompt Beijing to relax its monetary policy, analysts said.

The PMI purchasing managers calculated by HSBC has reached 48 in November, against 51 in October. A figure above 50 indicates expansion in manufacturing activity, a figure below 50 means a contraction.

The index is published a few days after the remarks of Vice Premier Wang Qishan, in charge of finance, predicting a prolonged recession in the global economy. The decline in the PMI “implies that the growth of industrial production is likely to fall to 11% or 12% year on year in the coming months,” said analyst Qu Hongbin, an economist for China HSBC. In October, industrial production rose by 13.2% yoy and 13.8% in September. “Domestic demand slows and external demand is expected to weaken,” said Qu.

Chinese exporters are feeling the effects of the debt crisis in Europe, their largest market, and the consequences of a difficult economic situation in the United States. In October, Chinese exports to the EU declined to 28,740,000,000 dollars, against 31,610,000,000 in September, while exports to the United States also fell, to 28.6 billion, against 30.11 billion dollars in September. The contraction in China’s foreign trade in a context of slower growth in the second economy, which rose from 10.4% last year to 9.7% in the first quarter, 9.5% in the second and 9.1% in the third.

However, the slowdown in inflation “will give Beijing more room for selective easing measures” of monetary policy, according to Qu. Rising consumer prices rose 5.5% in October over one year, its lowest level since May, after peaking at 6.5% in July. To fight against inflation, China repeatedly raised interest rates and bank reserve requirements since the fall of 2010.