China’s manufacturing activity at 32-month low

China’s manufacturing sector has shrank to its lowest level in almost three years, according to a new assessment by banking giant HSBC.

The news comes just days after Vice Premier Wang Qishan, China’s top finance official, predicted that the global recession was in China to stay and would impact the export-dependent economy due to weakening external demand.

HSBC reported that its flash purchasing managers’ index for the Asian country slipped to 48 compared with 51 in October, while its flash manufacturing output index also slipped to 46.7 from 51.4 in October. A reading of less than 50 indicates contraction.

The 32-month low in manufacturing is part of a larger trend in China, where economic growth eased to 9.1 per cent in the third quarter of 2011 from 9.5 per cent in the second quarter, as government efforts to tame inflation and economic turbulence in Europe and the U.S. curbed activity.

According to a statement by HSBC chief China economist Qu Hongbin, continued reduction in foreign demand for China’s exports heralds a further slowdown in production in coming months.

But Hongbin added that China had more room to ease its tight monetary policy to boost a slowing domestic economy as inflation was now in check. Officials in Beijing have already been taking steps to reverse the slowdown, Hongbin added, including restricting the amount of money banks can lend and hiking interest rates. The measures appear to have worked, as the nation’s inflation slowed sharply in October, with the consumer price index rising 5.5 percent year-on-year, the slowest pace since May as food prices fell. “It will leave more room for Beijing to step up selective easing measures, which should gradually filter through to keep China on track for a soft landing,” Qu said in the statement.