Experts have suggested that China may have to implement aggressive policies to prevent its economy from collapsing any further, especially considering how the official purchasing managers’ index (PMI) has slipped into a contractionary mode.
The PMI is a barometer of an economy’s manufacturing activities and China’s PMI has declined for the fourth successive month in January to 49.8, down from 50.1 in December 2014.
The last time China’s PMI went below the 50 mark was in September 2012. The demand in the manufacturing sector is considerably weak and more aggressive monetary policies will be required to prevent a sharp decline in growth.
In 2008-2009, China implemented a yuan 4000 billion economic growth plan to prevent global financial crisis, which targeted the housing, rural infrastructure, transportation, health and education sectors, and in 2012 China approved 60 infrastructure projects worth over CNY1000 billion.
China is one of the top two biggest economies in the world and is a major market for petrochemical imports in Asia, but China reported the slowest annual growth in 24 years in 2014 at 7.4 per cent as a result of sluggish domestic demand and volatile exports. The country also witnessed a decline in revenue growth since 1991 last year at 8.6 per cent.
HSBC reported its January PMI for China and recorded a lower reading of 49.7, down from 49.8 but slightly higher than 49.6 in the previous month.
Chinese manufacturers have witnessed a decline in operating conditions at the start of the current year, and though output increased ever so slightly and new orders started trickling in, but staffing levels were reduced for the fifteenth consecutive month.
Chinese manufacturers have witnessed a decline in operating conditions at the start of the current year, and though output increased ever so slightly and new orders started trickling in, but staffing levels were reduced for the fifteenth consecutive month.
And reduced client demand has forced firms to cut their stock holdings of both post- and pre-production goods in January. Experts suggest that China may turn to fine tuning its policies instead of implementing an aggressive economic stimulus programme. This stance may only increase commodity demand and prices for a short period of time.
China’s commodity demand is expected to increase this year as the government continues to focus on a consumption-led economy.
China’s central bank- the People’s Bank of China may probably slash its one-year lending rates by 25 base points to 5.35 per cent in the first quarter of 2015.
A report also showed that most sub-indexes have declined, including new orders and new export orders. New orders index has declined by 0.2 points to 50.2 in January and the production sub-index by 0.5 to 51.7. Purchasing volumes index also declined by 0.5 to 49.6 in January. While, new export orders index dropped by 0.7 from the previous month to 48.4, and imports index slipped 1.4 lower at 46.4.
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