China manufacturing gauge suffers sharpest fall in 6 years
Unexpectedly severe slowdown leaves index near zero-growth level, hitting mining shares
China’s official gauge of manufacturing activity suffered its largest fall since 2011 in February, an unexpectedly sharp slowdown that left it near the zero-growth level.
The manufacturing purchasing managers’ index published by China’s National Bureau of Statistics on Wednesday dropped to 50.3, down a point from January and the largest fall in more than six years. The fall marked the gauge’s nearest brush with the 50-point mark that separates growth from contraction since August 2016.
The figure was stark enough to unnerve European-listed mining stocks, which depend upon China for a significant part of their revenues.
Mining stocks took the biggest toll on London’s FTSE 100 in morning trade, with losses of more than 2 per cent for Rio Tinto, Glencore, BHP Billiton and Anglo American. The Stoxx mining index, which tracks the sector across the region, fell 2.3 per cent against a decline of just 0.3 per cent for the Europe-wide Stoxx 600.
A median forecast from economists polled by Reuters ahead of the PMI data had predicted only a fractional slowdown: none of the 28 forecasts for February had pencilled in a reading below 51 for the gauge, which is based on a survey of larger and predominantly state-run companies.
China’s statistics bureau attributed the slowdown to the lunar new year holiday, when migrant workers return to their home villages and output typically dips. In 2017 the holiday stretched from the end of January to early February, while this year’s holiday fell entirely in February, making for an unfavourable comparison.
However, the downward move was outsize for the usually incremental series, marking the sharpest fall since a 1.4 point drop in late 2011 that pushed the gauge into contractionary territory.
“The lower PMI readings for February may be partly due to Chinese new year, since seasonal adjustments may not fully iron out the impact in year-to-year shifts in the timing of the holiday,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “But even if we account for such volatility by averaging across the first two months of the year, the data still point to a clear slowdown in early 2018.”
Betty Wang, senior China economist for ANZ, suggested authorities’ crackdown on heavy polluters “also played an important role in dampening the headline numbers on top of the holiday effect”. But she added that while the drive’s impact on manufacturing activity would probably last for another couple of months, it was unlikely to have an impact on policy direction.
A variety of measures pointed to softer expansion, with a sub-index for growth in manufacturing output down almost 3 points at 50.7, while that for new orders fell 1.6 points to 51. A sub-index for export orders fell half a point to 49, signalling contraction in foreign demand.
Meanwhile, a gauge that tracks factory gate prices fell 2.6 points to 49.2, signalling the first instance of producer price deflation since June 2017 ending a seven-month rising streak.
China’s official non-manufacturing PMI was also down in February, dropping almost one point to 54.4 — a four-month low. A key sub-index for services sector growth fell 0.6 points to 53.8, while that for construction dropped 3 points to 57.5, suggesting softer growth was not limited to factories in February.
The next signpost for China’s manufacturers will be Thursday’s Caixin-Markit manufacturing PMI, an independent gauge that focuses on smaller, privately owned manufacturers and acts as a cross-check on the official series.