China's official PMI seen hitting 9-month low in August

BEIJING Wed Aug 29, 2012 3:31pm IST

An employee walks past columns of steel as she works at a steel production factory in Wuhan, Hubei province, August 2, 2012. REUTERS/Stringer

An employee walks past columns of steel as she works at a steel production factory in Wuhan, Hubei province, August 2, 2012.

Credit: Reuters/Stringer

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BEIJING (Reuters) - China's official manufacturing managers' index (PMI) may have eased to a 9-month low of 50 in August, supporting the case for fresh easing measures by the central bank as the world's second-largest economy struggles against stiff global headwinds.

Having already cut interest rates in June and July, the central bank has been injecting cash into money markets to ease credit conditions further as the economy struggles to regather momentum after registering a slowdown for a sixth straight quarter in April-June.

A PMI reading below 50 suggests factory activity contracted, while a number above 50 points to expansion.

A flash PMI published last week by HSBC showed China's factories contracted in August, the most in nine months on falling export orders and rising inventories, signaling fresh policy action may be needed to support growth.

"It seems that August was not the bottom for the manufacturing sector. Exports have been weakening sharply entering the third quarter," said Wei Yao, China economist at Societe Generale in Hong Kong.

"This may call for faster implementation of policy easing measures," she added.

China's policymakers are wary of any action that could reignite property prices and inflation risks. But, many analysts believe that given the dismal state of export markets, the central bank could opt to lower banks' required reserves further, and may cut interest rates again.

The official PMI has generally painted a rosier picture of the factory sector than the HSBC PMI as the official survey focuses on big, state-owned firms, while the HSBC PMI targets smaller, private firms that have limited access to bank loans.

There are also differing approaches to seasonal adjustment between the two surveys.

A raft of weaker-than-expected economic data for July, including factory output growth that slowed to its weakest level in more than three years, has cooled market expectations for a quick turnaround in the economy.

China's annual economic growth could pick up to 7.9 percent in the third quarter from a three-year low of 7.6 percent in the second quarter in response to government policy fine-tuning, according to a Reuters poll in July.

The official PMI survey will be released on Saturday, at 0100 GMT, ahead of the final HSBC reading due to be published on September 3.

(Reporting by Kevin Yao and Tina Qiao; Editing by Simon Cameron-Moore)

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