China Manufacturing Activity Slumps -- Update

By William Kazer 

BEIJING--An initial measure of China's factory activity slumped to a seven-month low in December, pointing to a sluggish performance for the world's second-largest economy in the last quarter of the year.

The weak reading was particularly disappointing after a cut in interest rates last month--the first in more than two years--and more government stimulus measures aimed at boosting a sluggish economy.

"Domestic demand slowed considerably," said HSBC economist Qu Hongbin in a statement accompanying the data release. "The manufacturing slowdown continues in December and points to a weak ending for 2014."

An initial reading of the HSBC China Manufacturing Purchasing Managers' Index, a gauge of nationwide manufacturing activity, fell to 49.5 in December, below the 50 point cutoff that separates growth from contraction compared with the previous month. The HSBC manufacturing PMI showed a final reading of 50.0 in November.

Subindexes for output, new orders, employment and stocks of purchases and finished goods all lost ground during the month, though new export orders showed an increase.

Economists noted that the reading was taken relatively early in the month due to the year-end holidays, and that undercut some of the weight that could be attached to the data.

Nonetheless, analysts said it was hardly a robust reading.

Kevin Lai, economist at Daiwa Capital Markets, said the poor preliminary PMI reading for December on top of weak October and November data could mean gross domestic product growth of only about 6.9% in the final quarter. China's gross domestic product expanded 7.3% year-over-year in the third quarter, and that was the weakest level in five years.

"The components in the PMI look quite soft," said Mr. Lai.

"We are rapidly losing momentum," he said, adding this was a bad sign for global growth as China's demand for a wide range of materials has long helped fuel expansion in economies around the world.

The preliminary PMI figure, also called the HSBC flash China PMI, is typically based on 85% to 90% of total responses to HSBC's PMI survey each month.

The preliminary reading, which is usually issued about one week before the final PMI reading, was released more than two weeks before the final estimate for December. The final reading is due on Jan. 2.

Write to William Kazer at [e-mail]

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