China reading on manufacturing health slips

[American Turtle]

HONG KONG -- While China continues to report robust economic growth, a widely watched privately-run index on its manufacturing sector has slipped to its lowest level in 19 months.

The index, brokerage house CLSA Asia Pacific Market's Purchasing Managers' Index, or PMI, is designed to signal the health of Chinese manufacturing. A figure below 50 indicates that the sector is deteriorating.

October's index released yesterday came in at 50.1, the strongest indication thus far that China's manufacturing sector -- a major engine for the country's blistering economic growth -- could face tougher times ahead because of excess capacity, rising input prices and declining employment.

Still, many investment banks remain bullish on the overall Chinese economy and have been raising their forecasts for the rest of this year and 2006. China's gross domestic product is on course to again increase by at least 9% this year.

Eric Fishwick, CLSA's deputy chief economist, noted that the latest set of figures contrasts with China's "apparently bullish" third-quarter GDP growth statistics. He predicted that if manufacturing sags, Beijing might be prompted to stimulate economic growth next year with financial measures such as lowering interest rates.

CLSA's PMI is jointly run by CLSA, a unit of France's Credit Agricole SA, and NTC Research Ltd. of the U.K., a company that collates such indices for more than 15 countries.

The latest CLSA number differs from one published by China's National Bureau of Statistics, which put the country's official PMI for October at a relatively healthy 54.1.

China's launched its own PMI in the middle of this year. Initially, its index numbers -- collected from about 700 companies -- were close to those from CLSA, whose index involves about 450 companies. However, in recent months they have diverged significantly.

The creators of China's official PMI asserted at its launch that the index would be more accurate than those from the private sector, although many economists remain skeptical about the government's data.

Nearly all PMIs in the world are prepared by private groups, not governments. China's official PMI is a collaboration between the statistics bureau and the China Federation of Logistics & Purchasing Trade Association.

[HenryTo]

Chinese manufacturing production (which makes up 50% of its economy) shrinks for the first time in 3 years.

http://www.laedc.org/eedge/index.html#2