China's manufacturing sector contracted in August after a nine-month expansion, the latest warning sign that weaking market demand may further aggravate the overall economy.

The official manufacturing Purchasing Management Index that was jointly released by the National Bureau of Statistics and the China Federation of Logistics and Purchasing declined to 49.2 last month, the lowest level since December 2011, 0.9 points lower than that in July.

In slipping below 50, the PMI figure ended the expansion over nine months and switched to a contraction, which may strengthen the government's determination to bolster growth.

The sub-index to show the production output retreated to 50.9 from July's 51.8. Industries including equipment manufacturing, automobile, black-metal smelting and rolling processing and textiles suffered contractions, according to the official data.

Wang Tao, chief economist in China with UBS AG, predicted that industrial production had likely slowed further - to below 9 percent year-on-year in August - and the average factory-gate prices may dropped by more than 3 percent from a year earlier.

"The difficulties of the Chinese economy may be more serious than expected," said Liu Ligang, head of China economics studies at the Australia and New Zealand Banking Group Ltd.

Liu said the previous two cuts of the benchmark interest rates in June and July, as well as the injected market liquidity from the central bank's reverse repurchase agreement operations "didn't have substantial effects".

The unexpected rate of slowdown "forces the People's Bank of China to immediately lower the reserve requirement ratio," he said.

On Saturday, the New Zealand Banking Group lowered Chinese economic growth outlook to 7.8 percent this year from 8.2 percent, with expectations that the GDP rate in July-to-September period is likely less than the second quarter's 7.6 percent.

"The less aggressive policy action so far does mean delayed and likely weaker growth recovery in the second half this year", Wang said.

According to the NBS, the new orders were also declining, indicated by a reading of 48.7, 0.3 percentage points lower than July's figure. The level of export orders remained the same as in July, 46.6, showing that the manufacturing producers may still have pressure to stabilize income.

"The export growth may slightly rebound, and the expected stronger market demand can support a steady growth of new orders in the future," said Zhang Liqun, an analyst with the State Council's Development Research Center.

Zhang said that the consecutive quarterly economic slowdown since the fourth quarter in 2010 may gradually bottom out in September.

Premier Wen Jiabao pushed for more targeted efforts to boost export growth during his visit last week to the southern province of Guangdong.

UBS economist Wang Tao said he believed that "export growth may have rebounded somewhat but remained weak, while imports have been weighed down by falling commodity prices".

Profits down for top companies

In another sign of the country's economic slowdown, profitability has dropped fast, according to data released on Saturday from the China Enterprise Confederation and China Enterprise Directors Association.

The 2012 China Top 500 Enterprises List compiled by the two associations suggested that the total revenue of the biggest 500 business was 44.9 trillion yuan ($6.9 trillion), a 23.6 percent increase from a year earlier.

But the profit-revenue ratio declined 1.07 points to 4.7 percent, reflecting that the companies failed to maintain high profit growth in the current complex economic situation.

The growth rate of profit was 5.15 percent year-on-year, 33.36 percent lower than that from a year earlier.

China's major oil company, Sinopec, has topped the annual ranking of the biggest-earning Chinese enterprises for an eighth straight year, according to the list.

Sinopec, with 2.55 trillion yuan revenue in 2011, was followed on the list by another oil company, China National Petroleum Corporation, which also reported revenue of more than 2 trillion yuan.

The two were joined by eight other big State firms in the top 10 State Grid; Industrial and Commercial Bank of China; China Construction Bank; China Mobile; Agricultural Bank of China; Bank of China; China State Construction; and China National Offshore Oil Corporation.

But analysts still believe that the government may continue to loosen policy further to boost industrial production and stabilize employment, by injecting market liquidity and encourage bank loans, although the authorities have fears inflation risks, particularly rising property prices.

The country's economic growth is stabilizing at a slow pace, said Zhang Ping, minister of the National Development and Reform Commission last week.

Xinhua contributed to this story.

chenjia1@chinadaily.com.cn

(China Daily 09/02/2012 page1)