China's manufacturing activity contracted in December while foreign direct investment fell for the first time in 28 months, data showed today, as crises in the US and Europe drag on the economy.
The bleak data came as the commerce ministry warned that export-driven China would face a "very severe" foreign trade situation in the first quarter of 2012 due to the "grim and complicated" global economic outlook.
Mounting evidence that China is slowing will ratchet up pressure on Beijing to further loosen monetary and fiscal policies to prevent the world's second biggest economy from suffering a painful hard landing.
The preliminary HSBC purchasing managers' index (PMI) reached 49 in December, slightly up from 47.7 in November - the first contraction in 33 months - as consumers from New York to Paris cut back on holiday spending due to deepening economic woes. A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction. The final figure will be released on December 30.
Other data showed China's foreign direct investment in November fell 9.76% from a year earlier to $8.76 billion, the first year-on-year decline for a single month since July 2009, the commerce ministry said.
China took $103.77 billion in the January-November period, up 13.15% from a year earlier, but slower than the 16% growth rate in the first 10 months, as US investment plunged 23.05%.
European investment rose an anaemic 0.29% to $5.98 billion, while investment from Asian countries soared 17.98% to $89.59 billion. Chinese leaders yesterday vowed to maintain a "prudent monetary policy and proactive fiscal policy" in 2012, suggesting they will move cautiously to open credit valves.
Beijing also pledged to keep property market restrictions in place to bring housing prices back to "reasonable levels". Policymakers are anxious to prevent a sharp slowdown in the economy but at the same time they want to avoid reigniting inflation, which hit a more than three year high of 6.5% in July and has the potential to trigger unrest.
Late last month China cut the amount of money banks must hold in reserve for the first time in three years to spur lending and counter turmoil in Europe and the US that threatens to derail the economy.
Analysts expect the government to further ease credit restrictions in the coming months as well as cut taxes for households and businesses and ramp up investment in infrastructure, such as social housing. Despite the economic slowdown, Beijing appears to have ruled out another massive stimulus plan like the one unveiled in late 2008 to combat the global financial crisis.
In November manufacturing activity contracted for the first time in 33 months, while consumer prices rose at their weakest pace in more than a year and industrial output growth hit its lowest level in over two years.
