Manufacturing sector in China remains sluggish

Growth in China’s manufacturing sector likely slowed to an 18-month low in December, a Reuters poll has showed, adding to signs of a protracted slowdown in the world’s second-largest economy that may prompt authorities to roll out more stimulus measures.

The median forecast from 11 economists in the poll was that the official manufacturing Purchasing Managers’ Index (PMI) for December will drop to 50.1, the weakest level from June 2013, from 50.3 in November.

The PMI will be released on Thursday.

A reading above 50-point level indicates an expansion in activity while one below that points to a contraction on a monthly basis.

“We expect the manufacturing sector to remain sluggish in December, in line with a continued slowdown in the economy as the property sector weighs,” said Nie Wen, an economist at Hwabao Trust in Shanghai.

A preliminary PMI survey released this month by HSBC/Markit showed activity in the factory sector contracted in December for the first time in seven months.

The official PMI is focused on larger, state-owned factories, as opposed to the HSBC/Markit PMI, which focuses more on smaller manufacturers in the private sector. Smaller firms have been facing greater strains, including higher financing costs, though recent data have suggested larger firms are also succumbing to the pressure from the prolonged downturn.

Chinese factories are struggling to cope with widespread excess capacity and falling prices that hurt their bottom lines.

Official data released, on Saturday, showed Chinese industrial profits dropped 4.2% in November for a year earlier, the biggest annual decline since August 2012.

Many analysts expect economic growth in the fourth quarter to slow from 7.3% in the third quarter, suggesting full-year growth will undershoot the government’s 7.5% target and mark the weakest expansion in 24 years.

The Beijing government is expected to announce more stimulus, such as cutting bank reserve ratios or interest rates, to ward off a sharper growth slowdown could fuel job losses and debt defaults. The central bank unexpectedly cut interest rate cut for the first time in two years in November, while the economic planning agency has been approving more infrastructure projects to help spur growth.

* Reuters