China manufacturing activity shrinking

China's manufacturing activity continued to contract in December, banking giant HSBC says, as exports are hurt by the ongoing crises in the crucial US and European markets.

The preliminary HSBC purchasing managers' index (PMI) reached 49 in December, slightly better than the 47.7 in November, as consumers from New York to Paris cut back on holiday spending due to the dire outlook.

A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction. The final figure will be released on December 30.

The data adds to mounting evidence that export-driven China is slowing and will ratchet up pressure on Beijing to further loosen policies to prevent a painful hard landing in the world's second largest economy.

"With inflation quickly shifting to disinflation, the Chinese government can and should make more aggressive easing on both fiscal and monetary fronts to stabilise growth and jobs," HSBC chief economist Qu Hongbin said.

Qu also warned that "growth momentum remains weak with additional downside risks from exports and the property market not yet fully filtering through".

But Chinese leaders on Wednesday vowed to maintain a "prudent monetary policy and proactive fiscal policy" in 2012, suggesting they will move cautiously to open credit valves.

Beijing is anxious to prevent a sharp slowdown in the economy but at the same time it wants to avoid reigniting inflation, which hit a more than three year high of 6.5 per cent in July and has the potential to trigger unrest.

Late last month China cut the amount of money banks must hold in reserve for the first time in three years to spur lending and counter turmoil in Europe and the United States that threatens to derail the economy.

Manufacturing activity contracted in November for the first time in 33 months, while consumer prices rose at their weakest pace in more than a year and industrial output growth hit its lowest level in more than two years.

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Source: http://finance.ninemsn.com.au/newsbusiness/aap/8390415/china-manufacturing-activity-shrinking

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