China's manufacturing drops on low demand

China's manufacturing shrank for a third month in December as export demand fell, suggesting an economic slump is worsening despite government efforts to shield the country from global turmoil, according to data.

A key indicator, the Purchasing Managers Index, edged up from November's all-time low but stood at 41.2, below the 50 level that shows activity is shrinking, the government-sanctioned China Federation of Logistics and Purchasing said.

Manufacturing is about 40 per cent of China's economic output, and a drop in demand for its exports has triggered thousands of factory closures. That has prompted protests by laid-off workers, and communist leaders worry more job losses could fuel unrest.

The index of new export orders stood at 30.7, showing a severe contraction, according to the logistics group. Exports fell in November for the first time in seven years and analysts expect more weakness in December when monthly figures are reported this month.

The index is based on a survey of 700 manufacturers across China.

China's economic growth is expected to fall to about nine per cent in 2008, down from 11.9 per cent in 2007. Analysts have cut 2009 growth forecasts to as low as six per cent – a worrisome sign for communist leaders who need to satisfy a public that has come to expect steadily rising incomes.

The government is pressing companies to minimise layoffs and has promised to make sure new university graduates can find jobs.

On Sunday, China's premier announced a 12-year plan to increase spending on education and vocational training in an apparent effort to stimulate economic growth.

"At present, when dealing with the global financial crisis' impact on the Chinese economy, and during the key period of promoting stable and relatively fast economic development, education must be given prominence," Wen said in a statement posted on the central government's web site.

Wen said the government will increase scholarship and grant spending from the 20 billion yuan (Dh10.6bn) in 2008, but did not go into specifics.

The government also aims to gradually provide free vocational training in rural areas and continue to implement plans to build more middle and elementary schools, Wen said.

China spent 26.8 billion yuan on the construction and renovation of elementary and middle schools in rural areas over the last two years, he said.

The education programme marks the latest government move to try to spur spending by easing the financial burden on families who save heavily for healthcare, education and retirement.

Beijing launched a multibillion-dollar spending package in November to revive growth and is promising companies loans and other aid. But the stimulus is in its early stages, and analysts say it could take several months to see results. Xinhua News Agency reported that China's foreign trade rose by 18 per cent in 2008 but gave no details for December.

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