China's manufacturing may contract this month by the most in almost three years as domestic demand weakens after government tightening measures, preliminary data for a purchasing managers' index shows.
The reading of 48 reported by HSBC Holdings Plc and Markit Economics today compares with a final number of 51 last month. A number below 50 indicates a contraction.
Sliding home sales and reduced export demand because of Europe's sovereign-debt crisis threaten to cause a deeper slowdown in the economy that is the biggest driver of global growth. The World Bank said yesterday that Premier Wen Jiabao's government can roll out fiscal stimulus as needed to avoid a "hard landing."
Industrial-output growth "is likely to slow further" in coming months on weakness in domestic and overseas demand, said Qu Hongbin, a Hong Kong-based economist for HSBC. Moderating inflation may leave "more room for Beijing to step up selective easing measures," he said.
The Shanghai Composite Index fell 0.3 percent as of 11:30 a.m. local time after HSBC said the survey indicated the sharpest fall in output since March 2009. The manufacturing index may slide to a 32-month low, the preliminary number suggests.
'Significant Deterioration'
The data "should be interpreted cautiously because it has a short history, and is not highly correlated with actual industrial output," said Dariusz Kowalczyk, Hong Kong-based senior strategist at Credit Agricole CIB. At the same time, "it does point to a significant deterioration of manufacturing sentiment," he said.
Today's figure may indicate that a manufacturing PMI backed by the government will also fall below 50, said Li Wei, an economist at Standard Chartered Plc in Shanghai. The nation's economic growth may dip to 7.5 percent during the first half of next year, compared to the 9.1 percent pace in the third quarter, he said.
Most economists surveyed by Bloomberg News this month forecast no interest-rate cuts through next year, with the government likely to use other easing tools if necessary. Lending rebounded in October and Market News International reported yesterday that reserve requirements have been lowered for some small lenders in Zhejiang province, where businesses in the city of Wenzhou have complained of a credit squeeze.
Property Slowdown
HSBC's preliminary index, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey sent to executives at more than 400 companies. The final reading is usually released on the first day of the month.
HSBC's Qu said export orders were "surprisingly resilient," indicating that China's November shipments may be better than expected as the full impact of a slowdown in trade takes time to hit.
The property market is cooling after a government crackdown to rein in speculation, limit the risk of asset bubbles and keep housing affordable. In October, housing transactions declined 25 percent from September and prices fell in 33 of 70 cities, official data shows.
"Demand for construction machinery has shrunk drastically and growth will no doubt continue to slow next year," Zhan Chunxin, chairman of Zoomlion Heavy Industry Science & Technology Co. said in a Nov. 15 interview in Hong Kong.
The World Bank predicts China's gross domestic product will rise 8.4 percent next year after a 9.1 percent expansion in 2011. Bank of America Corp. said in an e-mail today that it has cut a forecast for gains in consumer prices next year to 3.5 percent from 4.5 percent.
