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China – Manufacturing Shrinks For First Time In Two Years.

4 February, 2015

 


Manufacturing activity in China contracted for the first time in more than two years according to an official survey, confirming reports of a slowdown in the world’s second-largest economy.

The purchasing managers’ index (PMI) released by the national bureau of statistics came in at 49.8 last month, down from the 50.1 recorded in December. This is the first time since September 2012 that the PMI has fallen below 50 – a PMI of above 50 indicates growth in the sector, while a figure below 50 shows contraction.

 

A separate PMI survey from HSBC and Markit reported a PMI of 49.7 in January, down slightly from a ‘flash’ reading of 49.8 in January, but up from 49.6 in December.

 

Commenting on the survey, chief economist for China at HSBC Hongbin Qusaid: “We think demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth.”

 

The economic data follows a series of moves by the Chinese government to boost growth in the past two months, including a cut to interest rates for the first time in two years.

 

China manufacturing expert Bernd-Uwe Stucken of Pinsent Masons said that this trend has been evident for a while among manufacturers in China.

 

“A key problem is the increasing cost of manufacturing in China. Pressure is increasing this year for eurozone countries as the euro has depreciated considerably in relation to the RMB. We’re seeing clients start to change supply chains back to Europe, as countries like Poland and Portugal become more competitive in terms of costs.”

 

“Of course, not all businesses can relocate. Those who sell to the Chinese market have to stay here, and latecomers and companies in newly liberalised sectors are still moving into China. Nevertheless, those keeping or building a presence in China will have to deal with the cost pressure and as a consequence we see a growing trend towards restructuring, including downsizing, relocation, business consolidation and automation.”

 

Pinsent Masons

 

For further information, please contact:

 

David Isaac, Partner, Pinsent Masons

david.isaac@pinsentmasons.com

 

Homegrown Corporate/M&A Law Firms in China  

 

 

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