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Monday, December 01, 2008

China's Manufacturing Contracts Sharply In November

China’s manufacturing shrank by the most on record and export orders plunged, providing more evidence that recessions in the U.S., Europe and Japan are sharply slowing what was previously the world’s fastest-growing major economy. The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, according to the China Federation of Logistics and Purchasing. The output index fell to 35.5 from 44.3, while the index of new orders dropped to 32.3 from 41.7. On these indexes any reading below 50 means contraction, and as can be seen in the chart below, China's manufacturing industry has now been contracting (month on month) in four of the last five months. The November reading stands out though, since the magnitude of the contraction has accelerated sharply.

A separate index - the CLSA China Purchasing Managers’ Index - reveals a similar picture, and fell to a seasonally adjusted 40.9 in November from 45.2 in October. The CLSA index, which was started in April 2004, is based on a survey of more than 400 manufacturing companies.

Output, new orders and export orders had record contractions. The output index fell to 39.2 in November from 43.4 in October, while the index of new orders declined to 36.1 from 43.8. The index of export orders dropped to 28.2 from 44.3, CLSA said.

A slump in property sales and building work is also undermining growth. Construction of homes, offices and factories contracted at least 16.6 percent in October after a 32.5 percent expansion a year earlier, according to a report from Macquarie Securities.