The fall in exports has hurt manufacturing activity in China

While the World Bank Wednesday lowered its growth forecast for China in 2012, the HSBC bank Wednesday released its index of manufacturing activity in the country, fell for the seventh consecutive month.

In May, manufacturing activity is contracted again, according to a provisional index released on Thursday by the bank HSBC , which confirms a deterioration in terms of exports. This is the seventh month of consecutive decline in this indicator. “The HSBC PMI (Purchasing Managers Index) settled temporarily at 48.7, against 49.3 in April and 48.3 in March,” the bank said in a statement. An index reading above 50 indicates expansion, and a figure below this threshold means contraction.

This further erosion of industrial activity “reflects the deterioration in exports,” commented Qu Hongbin, chief economist at the HSBC bank in China. “This calls for easing economy, as inflation continues to slow,” he added. To fight against the economic slowdown, Beijing should also speed up the approval process for infrastructure investments.

China Federation of Logistics and Purchasing (CFLP), an organization close to the government, was able to release its own PMI, it published the figure for the following month. The index noted an expansion of manufacturing activity in China in April (53.3), unlike HSBC. The figure for May will be available in a week. The CFLP PMI mostly comes from big business and underestimates the importance of SMEs, argue analysts to explain the difference between the two measures.

In the first quarter, growth in China has fallen to 8.1%, its lowest level in almost three years, due to the sluggishness of its major export markets such as the United States and the Europe. Beijing expects growth of 7.5% for 2012, a rate much lower than the previous two years. In April, growth in industrial production, imports, exports, investment in fixed assets and the volume of new loans had all decreased. For its part, the World Bank lowered its growth forecast Wednesday for the country. In 2012, the institution expects Chinese GDP growth of 8.2%, against 8.4% previously. The economy thus continues to decelerate after a 9.2% growth in 2011 and 10.4% in 2010.

“The weakness of the euro area has so far been the main factor pulling down the export sector in China,” said Zhu Haibin of JP Morgan. “Domestically, the slowdown in demand is mainly due to government efforts to address the imbalances of the economy,” says the economist, explaining that these imbalances are reflected particularly in the very high share of investment in relation to consumption in China. The Chinese Government introduced measures restricting investment in real estate, fearing the formation of a speculative bubble. It also wanted to limit the projects in the automotive and steel industries, which could appear overcapacity. “All this significantly slows down the economy in the short term,” says the JP Morgan analyst.

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