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China's PMI falls below 50% in October, sounding alarm for further economic slowdown
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19:10, November 04, 2008

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The Purchase Management Index (PMI) of China's manufacturing sector dropped to 44.6 percent in October, down 6.6 percentage points from the previous month, according to the latest report released by the China Federation of Logistics and Purchasing (CFLP).

It was the third time within 2008 the country's PMI fell below 50 percent. Its decline reflected the slowdown trend of China's economic growth this year.

The PMI included a package of indices used to measure a country's monthly economic performance. China's PMI was conducted on the base of surveys directed at purchase and supply managers of more than 700 manufacturers across the country.

It rings the alarm for economic decline if the PMI goes below 50 percent.

According to the CFLP report, all but two of the 11 indices within the PMI pack showed a worrying drop in October, with figures concerning purchase prices and production taking the lead.

The two indices were down 12.4 and 10.3 percentage points respectively.

The index measuring new orders dropped to 41.7 percent, down 9.6 percent from September. That of new orders for export was 41.4percent, staying below 50 percent for four consecutive months since July.

"A falling new order index shows a sinking social demand, while the drop in the output index signals the growth of the manufacturing sector is slowing down," the report said.

In contrast, the product stock index reached beyond 50 percent for two months in a row. Experts said it may be another sign of lack of demand.

The dropping demand, together with the decrease in production, has already affected the country's employment, according to the PMI report. The employment index dropped 3.3 percentage points to 47 percent in October, marking the lowest point since 2006. Experts say that the slowing in the growth of the country's job total is reflected in the employment index.

Sixteen out of 20 industries involved in the PMI calculation reported an employment index below 50 percent. Among them, the index of the labor-intensive textile industry was 47.6 percent, six percentage points lower compared with the same period last year.

The garment industry employment index, another business section where the country's migrant workers flock, fell to 48.4 percent. The figure was down 6.4 percentage points from the previous month and 16 percentage points lower than last October.

Analysts regarded the decrease in employment as temporary, as China's overall economic development was still on a healthy track.

"With an ever increasing urbanization and a rising income, migrant workers will not return to their rural hometown in large amounts," said Scott Rozelle, a visiting professor on China's rural surplus labor market with Beijing-based Renmin University.

Zhang Liqun, researcher at the Development Research Center of the State Council, said the fluctuation of China's PMI may indicate a continuous slowdown of the country's economic growth.

"When September's PMI returned to above 50 percent (from 48.4 percent in August), people attributed the GDP decrease (to 9 percent) in the third quarter to the side effect of the Olympics, as many enterprises were ordered to stop production during the Games."

"However, the October fall shows that China's economic slowdown largely came in line with domestic macro-control policy which focused on tackling inflation in the first half, as well as the slowdown in the world economy's growth."

Zhang foresaw no big drop in the nation's economic growth in the near future, as the government had already begun to take monetary and fiscal measures to stimulate domestic demand.

Source: Xinhua

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