China man­u­fac­tur­ing gauge at 12-month low: HSBC


An in­dex of China’s man­u­fac­tur­ing ac­tiv­ity fell to a 12-month low in April, HSBC said Thurs­day, in­di­cat­ing fur­ther weak­ness as growth sput­ters in the world’s sec­ond-largest econ­omy.

The Bri­tish bank’s pre­lim­i­nary pur­chas­ing man­agers’ in­dex (PMI) came in at 49.2, it said in a state­ment, be­low the 49.6 fi­nal read­ing in March.

The in­dex reached 50.7 in Fe­bru­ary but has now con­tracted in four of the past five months. The read­ing was also be­low the me­dian es­ti­mate of 49.6 in a Bloomberg News sur­vey.

The in­dex, com­piled by in­for­ma­tion ser­vices provider Markit, tracks ac­tiv­ity in China’s fac­to­ries and work­shops and is re­garded as a barom­e­ter of the health of the global eco­nomic gi­ant.

A fig­ure above 50 points to growth, but any­thing be­low in­di­cates con­trac­tion.

China’s gross do­mes­tic prod­uct (GDP) growth slowed to 7.0 per­cent in the first quar­ter from 7.3 per­cent in the fi­nal three months of last year, the worst re­sult in six years.

That came af­ter GDP ex­panded 7.4 per­cent in 2014, the slow­est full-year rate since 1990.

Au­thor­i­ties have stepped up stim­u­la­tory ef­forts af­ter the first quar­ter data and dis­ap­point­ingly weak industrial pro­duc­tion and re­tails sales data for March.

To boost lend­ing the cen­tral Peo­ple’s Bank of China (PBoC) cut the level of funds com­mer­cial banks must hold in re­serve by a full per­cent­age point, the sec­ond such re­duc­tion this year.

The PBoC has also low­ered in­ter­est rates twice since Novem­ber.

Weak Mo­men­tum

Markit econ­o­mist Annabel Fid­des said the man­u­fac­tur­ing sec­tor con­tin­ued to be plagued by tepid de­mand, fall­ing prices and a de­crease in em­ploy­ment.

“Rel­a­tively weak de­mand con- di­tions were also high­lighted by stronger de­fla­tion­ary pres­sures in the sec­tor, with both in­put and out­put prices fall­ing at faster rates. Mean­while, job shed­ding across man­u­fac­tur­ing firms was recorded for the 18th month in a row.”

Cit­ing a bright spot, how­ever, Fid­des said over­seas de­mand im­proved with ex­port de­mand ris­ing for the first time in three months.

HSBC said the fi­nal PMI data will be an­nounced on May 4.

The gov­ern­ment’s of­fi­cial PMI ear­lier this month showed man­u­fac­tur­ing ac­tiv­ity ex­pand­ing in March for the first time in 2015, com­ing in at 50.1.

“The fall­ing HSBC flash PMI ... sug­gests growth mo­men­tum may have re­mained weak in April,” No­mura econ­o­mists wrote in a re­ac­tion, adding that they ex­pect the of­fi­cial PMI, sched­uled for re­lease on May 1, to decline to 49.8 in April.

They re­it­er­ated their ex­pec­ta­tion that the PBoC will im­ple­ment two fur­ther RRR cuts and three more in­ter­est rate re­duc­tions this year.

China’s lead­ers are over­see­ing a man­aged slow­down in the econ­omy that is meant to en­sure more sta­ble ex­pan­sion based on de­mand from the coun­try’s in­creas­ingly wealthy and so­phis­ti­cated con­sumers.

But they are keen to en­sure the coun­try avoids a so-called hard land­ing, in which growth falls sharply and ham­pers job cre­ation, a pil­lar of so­cial sta­bil­ity in Com­mu­nist-ruled China.

Ju­lian Evans-Pritchard, China econ­o­mist at Cap­i­tal Eco­nomics said de­spite the drop in the pre­lim­i­nary PMI, the out­look for eco­nomic growth was not so dire.

The lat­est RRR cut “will have come too late to have much im­pact on to­day’s read­ing but should help shore up ac­tiv­ity over the com­ing months”, he said in a note.

“And we also ex­pect pol­i­cy­mak­ers to roll out more sup­port mea­sures to en­sure that growth doesn’t slip much fur­ther.”

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