China Manufacturing Gauge Declines in Growth Headwind: Economy

A Chinese manufacturing gauge

declined for the first time in four months, adding headwinds to

a recovery in the world’s second-largest economy as leaders

start to implement the broadest policy reforms since the 1990s.

The preliminary 50.4 reading for the November Purchasing

Managers’ Index (SHCOMP) released today by HSBC Holdings Plc and Markit

Economics compared with a 50.8 median estimate from analysts

surveyed by Bloomberg News. The final number for October was

50.9, and levels above 50 indicate expansion.

Slower manufacturing gains would add challenges for Premier

Li Keqiang in carrying out a reform package that includes

loosening controls on interest rates and giving farmers more

land rights. Expansion headwinds may intensify after last

month’s slowdown in credit growth that suggests Li is trying to

contain financial risks.

“The recent growth rebound may have peaked,” said Ding Shuang, senior economist at Citigroup Inc. in Hong Kong.

“Tighter credit conditions and reform measures will continue to

weigh on investment and growth through next year,” and reforms

may be slowed if the risk of expansion slipping below 7 percent

“becomes material.”

The benchmark Shanghai Composite Index of stocks fell 1.2

percent at 1:21 p.m. in Shanghai, while the MSCI Asia Pacific

Index (EC11FLAS) was down 0.6 percent. The Australian dollar declined

against the U.S. dollar.

The final reading of the HSBC-Markit manufacturing PMI will

be released on Dec. 2. The National Bureau of Statistics

publishes its own PMI survey, with a bigger sample size, on Dec.

1.

Analyst Projections

Estimates for the HSBC-Markit preliminary, or Flash, PMI,

from 18 analysts ranged from 50.4 to 51.7. The gauge is based on

85 percent to 90 percent of responses to surveys sent to more

than 420 manufacturers.

Output expanded at a faster pace while new orders rose at a

slower pace, according to HSBC’s statement. Gauges of new

export orders, employment and output prices showed contraction

while input prices rose at a slower pace.

The Communist Party last week unveiled policy shifts after

a four-day summit known as the third plenum. The dozens of

measures include gradually relaxing the residence-registration

system in mid-sized cities, accelerating convertibility of the

yuan and reducing price controls on water, oil, gas and power.

Given today’s figures, “resentment from vested interest

groups resisting reforms will escalate,” said Steve Wang, Hong

Kong-based chief China economist at Reorient Financial Markets

Ltd.

Reform Pace

Shen Jianguang, chief Asia economist at Mizuho Securities

Asia Ltd., said a growth slowdown this quarter won’t necessarily

slow down reforms. Instead, it will help accelerate changes that

boost domestic demand, including rules on rural property,

residential registration and the one-child policy, while

“leaving other reforms that are negative to growth in a later

stage,” Shen said.

Gross domestic product growth rebounded to 7.8 percent in

the third quarter from a year earlier, after a 7.5 percent pace

in the previous three months. The median estimate in a Bloomberg

survey of 34 economists last month was for fourth-quarter

expansion of 7.6 percent.

October data released earlier this month showed industrial

production unexpectedly accelerated, exports rose more than

estimated and inflation stayed below the government’s target. At

the same time, China’s broadest measure of new credit was lower

than estimated, suggesting authorities are trying to keep

shadow-banking risks in check.

Home Prices

A separate government report earlier this week showed new

home prices in China’s four major cities rose last month by the

most since January 2011, raising concern that a bubble is

forming as a lack of new nationwide property curbs emboldens

buyers.

Royal Bank of Scotland Group Plc maintained its outlook for

7.7 percent GDP growth this quarter and 8.2 percent in the first

half of 2014. “On balance, the reforms, which received a clear

mandate from last week’s Third Plenum, are more likely to be

positive than negative for growth,” Louis Kuijs, RBS chief

China economist in Hong Kong, wrote in a note today.

Elsewhere in Asia today, the Bank of Japan stuck with a

pledge to expand the monetary base by 60 trillion yen to 70

trillion yen ($700 billion) a year. Singapore raised its growth

forecast for 2013 after the economy unexpectedly expanded last

quarter. Hong Kong will publish inflation figures for October.

Europe will see Markit PMI gauges for November in France,

Germany and the euro area. In North America, the U.S. will give

numbers on producer prices for October, while Mexico will report

economic growth from a year earlier slowed in the third quarter,

based on a Bloomberg survey of analysts.

To contact Bloomberg News staff for this story:

Scott Lanman in Beijing at

slanman@bloomberg.net

To contact the editor responsible for this story:

Paul Panckhurst at

ppanckhurst@bloomberg.net

China Manufacturing Gauge Declines in Growth Headwind: Economy