China needs stimulus to prevent economic stall-out

World Today

Chinese Economy A construction site is seen in Beijing on December 16, 2014. Foreign investment into China accelerated in November, government data showed December 16, despite a worsening slowdown in the world’s second-largest economy and concerns over business risks. AFP PHOTO / Greg BAKER

HONG KONG — Chinese manufacturing output contracted this month for the first time in seven months in another sign the slowdown in the world’s No. 2 economy was quickening, according to a survey of factories released Tuesday.

HSBC’s preliminary purchasing managers’ index fell to a seven-month low of 49.5 from 50 in November, based on a 100-point scale on which numbers above 50 indicate expansion. It was the first time the index dipped below 50 since May, when it was 49.4.

It’s the latest in a string of weak data on China’s economy, which is struggling to meet its full-year growth target amid weak global demand. China’s economy expanded at a five-year low of 7.3 percent last quarter, below the official full year target of 7.5 percent. This report is expected to boost predictions that policymakers will add stimulus in order to prevent the economy from stalling.

China’s communist leaders, who have expressed confidence, said they can manage the slowdown. They cut interest rates unexpectedly in November in a sign that they were worried growth was falling too sharply.

“The manufacturing slowdown continues in December and points to a weak ending for 2014,” HSBC Chief China economist Qu Hongbin said. “The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”

Other recent official data for November showed that growth in industrial production slowed to 7.2 percent while imports contracted unexpectedly.

The final version of the report is due Jan. 2.

This story was compiled with information from The Associated Press.