Falling factory activity in China, mirroring lower demand both among domestic and foreign customers, may force Beijing to turn to growth policies to keep its economy revved up.
Reuters reported that the HSBC Purchasing Manager’s Index, which works to preview Chinese industrial conditions before the publication of official output data, rose just slightly to 48.7 in December from November’s 47.7, which was a 32-month low. It failed to reach the flash reading of 49.
Since July the PMI has mostly remained below 50, the demarcation point for expansion versus contraction, as it feels the effects of reduced consumption from the eurozone debt crisis and a slow U.S. economy.
As a result, it is thought that the People’s Bank of China will likely lessen its Required Reserve Ratio to free up cash from banks and stimulate more business.
Qu Hongbin, China economist at HSBC, was quoted saying, “While the pace of slowdown is stabilizing somewhat, weakening external demand is starting to bite. This, plus ongoing property market corrections, adds to calls for more aggressive action on fiscal and monetary fronts to stabilize growth and jobs, especially with prices easing rapidly.”