Two separate reports show that manufacturing activity in China contracted in November, giving more reason for the Chinese government to ease monetary policy in order to spur growth.
One report released by the state-sponsored China Federation of Logistics & Planning reported its manufacturing Purchasing Managers’ Index dropped to 49.0 on a 100 point scale, falling below the previous month’s 50.4 reading.
A private survey compiled by HSBC showed China PMI fell to 47.7, weaker than its initial reading of 48 released late last month, and indicating a deterioration of conditions from October’s reading of 51.
A number below the key 50 level that separates contraction from expansion is not good and signals deteriorating business conditions. Both reports had numbers below 50 with HSBC’s result the weakest since March 2009. The state sponsored survey was blow 50 for the first time since February 2009.
This manufacturing data from China usually can have an impact on the currency markets and investor sentiment due to China’s influence on the global economy. China is the second largest global economy after the United States.
The Australian dollar is particularly affected since China is a major trading partner for Australia whose majority of exports are destined there. The aussie slid briefly in Asian trading this morning after the Chinese PMI data.
On Wednesday this week, the People’s Bank of China lowered the reserve requirement ratio for its banks by 50 basis points. This is the first time in nearly three years and the aim is to ease credit strains in an effort to boost the Chinese economy which is showing signs of slowing down.