News

China's manufacturing activity contracted sharply in November as a downturn in the world's fourth-largest economy worsened, raising the threat of politically volatile job losses, according to data reported Monday.

Also Monday, the government lifted food price controls imposed earlier in the year to cool high inflation. The move highlighted the speed with which Beijing has had to shift focus from surging prices to falling growth.

The purchasing managers index, which measures new orders and other factors, fell to 38.8 in November on a 100-point scale where a number below 50 indicates manufacturing activity is shrinking, the China Federation of Logistics and Purchasing said. That was down from November's 44.6 and the lowest level since the survey started in 2005.

President Hu Jintao told Communist Party leaders in a weekend speech that China is 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 Mr. Hu, who is leader of the ruling party, rarely comments publicly on the economy.

China's manufacturers, which employ tens of millions of workers, have suffered a double blow from weakening demand in the United States and other key export markets and a downturn at home in industries such as real estate and auto sales.

The slowdown hit just as Beijing was trying to contain a surge in inflation, which Chinese leaders earlier said was this year's most urgent issue. Monday's decision to lift price controls came after food price inflation eased from a high of 23.3 per cent in February to 8.5 per cent in October.

The country's top economic planner said last week that the impact on China of the global financial crisis was deepening and he warned that rising job losses could fuel instability.

A dispute over pay for laid-off workers erupted into a riot last week at a toy factory in the southern city of Dongguan. Workers fought with security guards, overturned a police car and damaged computers in the factory office.

The impact is widening to domestic industries as slower sales of autos, homes and other items cuts demand for steel, electrical goods and other products.

The government has tried to maintain calm by urging factories not to lay off large numbers of employees.

China's economic growth is expected to fall to about 9 per cent this year, down from 11.9 per cent in 2007. Beijing has launched a multibillion-dollar stimulus package to boost growth, but analysts say it could take several months before the effects are felt.

Production could fall further in coming months as manufacturers clear out backlogs of unsold goods, said UBS economists Tao Wang and Harrison Wu.

“We expect more bad news in headline numbers such as industrial production, power consumption, and transportation in the coming months,” they said in a report.

The index of total new orders fell to 32.3 in November, a decline of 9.4 points from the previous month, the logistics federation said. It said the index of new export orders fell to 29, down 12.4 points from October.

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