China PMI shrinks after 3 yrs on economic slowdown

The Chinese economy is headed for troubled waters, with its manufacturing sector shrinking in November for the first time in nearly three years, in a fresh sign of a further economic slowdown that may prompt it to loosen its monetary policy.

The purchasing managers' index (PMI), a gauge of manufacturing activity, tumbled to 49 from 50.4 in October, according to the China Federation of Logistics and Purchasing.

A PMI under 50 indicates a contraction of manufacturing activity, a situation that hasn't been seen in China since February, 2009.

The sub-index for export orders fell sharply to 45.6 in November from 48.6 in October, indicating that the spreading euro zone debt crisis and weakened demand from the United States were hurting growth in the world's second-largest economy.

Some analysts said a lull in China's property market also contributed to the economic slowdown, with both prices and sales dropping significantly following the last round of credit tightening.

"It reinforces our view that China's economy will fall sharply in the months ahead as the property sector has reached a tipping point," Zhang Zhiwei, an economist with Nomura Securities, said.

The risk of a sharp deterioration of GDP growth in the first quarter next year is rising significantly, he told state-run China Daily today.

The poor PMI data released on Thursday came one day after the Chinese government slashed the reserve ratio for the country's commercial lenders to improve money supply.