Chinese manufacturing is shrinking

Chinese manufacturing is shrinking

Factory activity in the world's second largest economy, China, deteriorated in November as the manufacturing sector continued to shrink.

The official purchasing managers' index (PMI) fell below forecasts to 49.6 in November, down from the previous month's reading of 49.8. It has, however, to be recognized that a reading below the 50-mark indicates contraction in the sector, while one above suggests growth.

China's factories have struggled to gain sustainability in a slowing economy, particularly, the manufacturing sector.

With respect to the slowing of growth in china, economists are also concerned that it will miss Beijing's official growth target of 7%.

Since the rate of export of Chinese products is continually declining, the government is trying to move China from an export-driven economy to a consumption-based one. As an attempt to boost slowing economic growth, the government has released a raft of stimulus measures to boost growth
over the last few months - including cutting interest rates six times and fast-tracking investment approvals for new building projects and factory plants.

But so far these measures don't appear to have worked.

Flexible Service Sector

Activity in the country's services sector did show acceptable progress last month which helped offset the decline in manufacturing.

The services PMI rose to 53.6 from 53.1 in October.

Bernard Aw, market strategist at trading firm IG, said the improvement in the services PMI had reinforced the view that the sector is "cushioning" growth.

However, the recent government directives might also have reflected the relevant growth in service sector. China's central bank has cut interest rates six times since last November, among a series of other measures to stimulate the economy.

China's manufacturing sector is a key gauge of how the economy is doing. Therefore, the relative changes in Chinese economy would also have implications over stock markets and investor confidence, particularly, in the other parts of Asia. Hence the movements in Chinese economy and any potential government initiative must have been observed in future.