By Joe Cash
BEIJING (Reuters) -China's manufacturing activity shrank for a second straight month in November and at a quicker pace, suggesting more stimulus will be needed to shore up economic growth and restore confidence that the authorities can ably support industry.
Economists upgraded their forecasts for the world's second-largest economy after better-than-expected third quarter data, but despite a flurry of policy support measures, negative sentiment among factory managers appears to have become entrenched in the face of weak demand both at home and abroad.
The official purchasing managers' index (PMI) fell to 49.4 in November from 49.5 in October, National Bureau of Statistics data showed on Thursday, missing economists' forecast of 49.7. The 50-point mark demarcates contraction from expansion.
"The domestic market cannot make up for losses in Europe and the United States. The data shows that factories are producing less and hiring fewer people," said Dan Wang, chief economist at Hang Seng Bank China.
"(The data) could also show a loss of confidence in government policy," she added, warning factory activity was unlikely to improve anytime soon as other economic problems dominate. "The priority now is clearly containing the local government debt risk and the risk posed by regional banks."
The new orders sub-index contracted for a second consecutive month, while the new export orders component extended its decline for a ninth month.
In another worrying sign, the vast services sector contracted for the first time in 12 months. The non-manufacturing PMI, which includes services and construction, eased to 50.2 in November from 50.6 last month.
China's economy has struggled this year to mount a strong post-pandemic recovery, held back by a deepening crisis in the property market, local government debt risks, slow global growth and geopolitical tensions.
The factory PMI has contracted for seven out of the past eight months - rising above the 50-point mark only in September. The last time the indicator was negative for more than three consecutive months was in the six months to October 2019.
"The hard data have held up better than the survey-based measures lately... (which) may be overstating the extent of slowdown due to sentiment effects," Sheana Yue, China economist at Capital Economics, said in a note.
"But if that starts to change, policy support will need to be ramped up further to prevent the economy from backsliding."
The patchy recovery has prompted many analysts to warn that China may decline into Japanese-style stagnation later this decade unless policymakers take steps to reorient the economy towards household consumption and market-allocation of resources.