China’s weak January PMI calls for further easing: ANZ

SINGAPORE – Pointing to China’s “surprisingly weak” official PMI result in January, suggesting that growth has slowed again after modest stabilisation in the fourth quarter of 2014, ANZ Bank says there is a strengthening casel for further policy easing. China’s industrial profits declined sharply by 8.0% y/y in December , to the lowest level since introduction of this ANZ data series in October 2011.

“For the whole year of 2014, industrial profits gained by 3.3%, down from 12.2% in 2013. The softness in China’s manufacturing sector reflects sluggish demand – and that de-leveraging of traditional sectors has not completed,” ANZ says.
“Looking into sub-sector data, we find that the worst performers are coal, petroleum processing and ferrous metal ore mining industries, with profits falling by 46.2%, 79.2% and 23.9% respectively. The ferrous metal smelting industry, accounting for 6.8% of the manufacturing sector, also dropped 2.7% in profits.

“The outperformers are the automobile, railways and shipping, electrical machinery, computer and electricity production industries, with profits gaining 18.1%, 20.5%, 13.7%, 17.1% and 19.1% respectively.

“Obviously, the significant differences within industrial sectors are largely owing to the collapse of the commodity prices. As the mining and processing industries still represent a significant proportion in in manufacturing sector, the plunge in profits of these sectors has dragged down the whole sector.

“While the negative impact of low commodity prices on the manufacturing sector will persist for a while, we think that high value-added industries and the services industry will benefit from lower costs over the long term.” www.live.anz.com (ATI).