China Manufacturing Index Dips to Lowest Since 2011

The official PMI survey, which tends to focus on larger, state firms, has shown persistent declines in employment for the last 3-1/2 years.

Economists cautioned the numbers were distorted by the Lunar New Year holiday, which falls at different times in the first two months of the year.

Last month’s PMI may have been distorted by factory suspensions during the Chinese New Year, which fell on February 8 this year.

The latest such move came Monday night when the central bank freed up more money for lending by cutting the amount banks need to hold in reserve.

Sub-sector data indicated that consumer goods was the best performing category, where growth rates for output and new orders surpassed those seen at intermediate goods firms.

Industrial profits fell 2.3 percent in 2015 after rising 3.3 percent in 2014.

Japan’s factories saw their weakest growth in eight months, while Indonesia and Malaysia contracted for the 17th and 11th month respectively, according to survey compiler Markit. These suggest that final USA manufacturing PMI for February will likely continue falling.

Recent tax changes have also raised concerns that China hopes to export more of its excess industrial capacity overseas, further worsening global gluts of chemical and steel products and effectively exporting deflation overseas. Services have helped offset manufacturing weakness in China’s economy, which past year posted its slowest expansion in a quarter century as growth ebbed to 6.9 percent.

Some market watchers believe real growth levels may already be much weaker.

Indonesia’s manufacturing activity deteriorated at a slower pace in February, showing signs that the sector may soon reach a turning point, the Nikkei Indonesia purchasing managers’ index survey showed on Tuesday (01/03).

Due to a rapid deteriorating manufacturing sector, China’s services sector will become an important growth driver. The National People’s Congress will gather Saturday, where plans for 2016 and the next five years will be outlined.

A proactive fiscal policy will be needed to support investments.

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