Global recession drags Chinese manufacturing to record low

China's manufacturing shrank by the most on record and export orders plunged, adding to evidence that recessions in the US, Europe and Japan are dragging down the world's fastest-growing major economy.

Two key gauges of manufacturing in China fell to record lows in November, signalling the country's economic growth will likely slow further in coming months before getting a boost from the government's pro-growth policies. (See: China feels the pangs as the world slows down / China's growth drops to lowest in five years)

The China Federation of Logistics and Purchasing said today its Purchasing Managers Index (PMI) for China fell to the lowest level since the index started in 2005. The November PMI was 38.8, down from 44.6 in October, revealing that the level of new business received by Chinese manufacturers fell for the fourth month in a row during the month.

The purchasing managers index is based on a survey of 700 manufacturers across China, the group said.

CLSA Asia-Pacific Markets said its PMI plunged to the lowest level since the index started in 2004, registering 40.9 in November compared with 45.2 in October. A PMI reading above 50.0 indicates the manufacturing economy is expanding. A reading below 50 indicates contraction.

Citing the global downturn, the slowdown in Chinese manufacturing and weakening domestic demand, J.P. Morgan economists Monday cut their forecasts for China's economic growth to 7.7 per cent in the fourth quarter from 8.2 per cent, and to 9.2 per cent for all of 2008 from 9.4 per cent. They predict growth will rebound in the second half next year because of policy measures, bringing 2009 growth to 8.0 per cent, just off their previous forecast of 8.1 per cent.

Export orders, output and new orders all shrank by the most since the surveys began as the global financial crisis sapped demand for the nation's toys, textiles and computers. The CSI 300 Index of stocks has fallen 68 per cent from a record in October last year and President Hu Jintao describes the economic situation as a test of the Communist Party's ability to govern.

In a weekend speech, Hu is supposed to have expressed concern that China was losing its competitive edge and warned that coping with the downturn is "a test of our party's governing ability," according to state media. The warning was especially significant because Hu, who is leader of the ruling party, rarely comments publicly on the economy.

The government last month announced a $586 billion stimulus package and the biggest interest-rate cut in 11 years to revive the economy and counter the risk of spiraling unemployment and social unrest. The key one-year lending rate fell 108 basis points to 5.58 per cent. (See: China pumps $586 billion to bolster economy / China slashes key lending, deposit rates to boost liquidity)