Chinese manufacturing activity contracted for the second consecutive month in September, according to an official survey released on Thursday, in a reading analysts said increased the likelihood of another interest rate cut by the People’s Bank of China.
The official purchasing manager’s index came in at 49.8 last month, after a reading of 49.7 in August. Readings below 50 indicate contraction.
Thursday’s PMI was higher than the unofficial Caixin China PMI released last week. The Caixin index focuses on small and medium-sized companies in China, which routinely complain of difficulties in securing credit from the state-led banking system.
“Commercial banks are still quite reluctant to provide credits to SMEs but hoard large chunks of money in corporate bonds issued by large names,” said Zhou Hao, economist with Commerzbank. “This reflects risk aversion and suggests that the policy easing is not sufficient to offset concerns over [China’s] economic slowdown.”
China’s central bank has cut interest rates five times since November. But two rate cuts this summer, along with an unprecedented market intervention by the government, failed to stem a rout on China’s stock exchanges.
Global markets were also rattled by the PBoC’s “one-off” devaluation of the renminbi on August 11 as part of an adjustment to make the currency’s exchange rate more market-driven. But poor communication of the strategy spooked global investors, who are now more worried than ever about China’s economic outlook.
“China’s weak survey data suggest that additional policy easing is quite likely before year-end,” said Bill Adams, economist at PNC Financial Services Group.
Last month the US Federal Reserve held off on an unexpected interest rate rise, citing an uncertain economic outlook in emerging economies and China specifically.
On Tuesday the Reserve Bank of India reduced its benchmark lending rate by 50 basis points. “Emerging market central banks see an opening to leave monetary policy looser for longer in the Federal Reserve’s decision to defer an initial interest rate hike,” Mr Adams added.
China’s economy is growing at its slowest annual rate in 25 years. The National Bureau of Statistics will release its third-quarter growth estimate on October 19. The NBS reported that China’s economy grew 7 per cent in both the first and second quarters, exactly in line with the government’s official target for the year.
China’s stock markets were closed on Thursday for National Day holiday, the start of a weeklong holiday. The Hong Kong stock exchange was also closed.