HONG KONG — The Chinese manufacturing sector contracted in November, according to a closely watched barometer, indicating that a key engine of global growth is getting dragged down by the economic woes of Europe and the United States and by the Chinese authorities’ moves to cool inflation.
An index measuring activity in the manufacturing sector, released by the China Federation of Logistics and Purchasing on Thursday, slumped to 49 in November, much more than economists had expected. The reading is below the 50 mark that separates expansion from contraction, and marked a significant fall from the previous month’s reading of 50.4.
A separate purchasing managers’ index released by HSBC on Thursday painted a similar picture. That index fell to 47.7, from 51 in October.
A large part of the slowdown has been the result of Beijing’s efforts to combat the inflationary pressures that have accompanied the rapid pace of growth seen during much of 2010 and 2011.
On Wednesday, the authorities reversed some of that tightening, by loosening the reins on bank lending for the first time in nearly three years. The rise in the so-called reserve requirement ratio for banks effectively allows financial institutions to extend more credit, helping prop up flagging growth.
“The message is clear: The economy is slowing much faster than expected and the government has stepped into the ring,” Alistair Thornton, China economist at IHS Global Insight in Beijing, said in a note on Thursday. “The loosening campaign has begun.”
He said the government moved early on cutting the reserve requirement ratio to give it some breathing room.
“They loosened too aggressively in 2009-10, tightened too aggressively in 2011, and are now treading a fine line in pursuing measured easing,” he said.
Data from other parts of Asia on Thursday indicated that the global gloom is starting to be felt across much of the region, albeit with varying intensity.
HSBC’s manufacturing indexes for India and South Korea slipped in November, but the reading for Taiwan edged higher.
Meanwhile, the South Korean government reported that exports held up unexpectedly well, with 13.8 percent growth from a year earlier.
But the situation is likely to get more challenging. “We believe that Korea’s still-solid exports to emerging economies will fade soon as these economies are negatively affected by weaker growth from the euro area, the U.S. and China,” said analysts at Nomura.
With the escalating debt crisis in Europe and feeble growth in the United States likely to brake growth further, economists expect policy makers in China and other countries to announce more stimulus measures in coming months.
Several indicators suggest that overall manufacturing growth in China has basically stalled in the last three to four months, while the services sector also has slowed, Stephen Green, China economist at Standard Chartered in Hong Kong, wrote in a note Thursday.
“This slowdown is no bad thing, given the overheating of the second half of 2010 and the first half of 2011, but as the balance of risks has shifted, policy now needs to respond,” he commented.
Crucially, China and many other Asia-Pacific economies have ample tools at their disposal to cushion their economies from the worsening global environment. Most countries in the region are not burdened with the high debt levels that beset the United States and Europe, and most have room to lower interest rates if needed.
Asian stock markets on Thursday greeted the cut in the Chinese banks’ reserve requirement ratio with a firm rally. Sentiment was also buoyed by action from the Federal Reserve and other central banks to free up liquidity in the global financial system.
In mainland China, the Shanghai composite index rose 2.3 percent, and in Hong Kong, the Hang Seng index jumped 5.3 percent. The Straits Times index in Singapore climbed 2.4 percent.
In Japan, the Nikkei 225 index closed 1.9 percent higher, and in Taiwan, the Taiex rose 4 percent.
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