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Portfolio > Economy & Markets

Another Sign China Growth Is Stalling: November PMI Falls

By Marlene Y. Satter

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In a possible further sign that Chinese economic growth is faltering, the country’s service sector in November showed the least growth in three months. The HSBC purchasing managers’ index indicated that although it is still on the other side of the line from contraction, the services sector fell to 52.5. In October it was 54.1, its highest level in four months.

PMI data showed, according to a Monday Bloomberg report, that both domestic and import orders are falling. According to figures released Saturday by the China Federation of Logistics and Purchasing, the official PMI for the nonmanufacturing sector was down to 49.7 in November from an October level of 57.7.

Qu Hongbin, HSBC’s chief China economist, said in a statement, “With price pressures easing further, Beijing can and should use policies that are targeted on small businesses and service sectors to keep GDP growth at above 8% for the coming year.” Manufacturing accounted for approximately 58% of the Chinese economy in 2010, while services made up about 38% during the same period.

Tim Condon, head of Asian economic research at ING in Singapore, said in the report, “The weakness in the manufacturing sector is spreading to the nonmanufacturing economy. We think the policy fine-tuning also will spread.” Analysts generally feel that China’s central bank can reduce reserve requirement ratios (RRR) more than they did last week, to put more cash back into the economy, since inflation is not as much of a concern as it was in July. While July’s inflation rate stood at a three-year high of 6.5%, it had fallen by October to 5.5%.

Chinese officials are increasingly worried about the effect the stagnant global economy and the European debt crisis could have on its own economy. Already Beijing has seen the nation’s economic growth slow for three quarters in a row, down to 9.1% in the period of July through September. Last week, Vice Finance Minister Zhu Guangyao said the world economy was in for a worse time financially than in 2008, and added that taking measures to spur growth should take priority.

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