China economy fears deepen as August HSBC flash PMI at 3-month low

Aug 21 2014, 14:06 IST
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SummaryChina Aug factory activity slowed to 3-month low.

Growth in China's vast factory sector slowed to a three-month low in August as output and new orders moderated, a preliminary private survey showed on Thursday, heightening concerns about increasing softness in the economy.

The tepid reading came as China's economic growth appears to be faltering again, with recent indicators ranging from lending to output and investment all pointing to weakness.

With conditions looking increasingly unsteady, analysts say more stimulus may be needed in coming months to bolster growth and offset the downdraft from the cooling housing market.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index (PMI) fell to 50.3 from July's 18-month high of 51.7, missing a Reuters forecast of 51.5.

It was the lowest reading since May, though the PMI stayed above the 50-point level that separates growth in activity from contraction for a third consecutive month.

"Today's data suggest that the economic recovery is still continuing but its momentum has slowed again," said Hongbin Qu, chief economist for China at HSBC.

"We think more policy support is needed to help consolidate the recovery. Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity," Qu said.

Losses for most Asian stock markets, including Hong Kong and China, deepened after the PMI survey while the Australian dollar fell. Australia is sensitive to news out of China, its key export market.

A HSBC/Markit sub-index measuring new orders, a gauge of demand at home and abroad, fell to a three-month low of 51.3. The sub-index for output also dropped to a three-month low in August.

MORE MEASURES EXPECTED

"Definitely there will be more measures to keep growth momentum steady in coming months," said Zhu Qibing, economist at Minzu Securities in Beijing. "But we don't expect interest rate cuts in the near term as the central bank has reiterated that it would keep its prudent monetary policy unchanged."

Wang Tao, China economist at UBS, said in a note to clients on Thursday that continued policy support, improved external demand plus new measures "should keep growth momentum relatively firm through September".

"The positive impact of still accommodative liquidity conditions, faster fiscal spending, and additional policy support, including intensified support for social housing and more widespread relaxation of local property restrictions, will still likely be felt in the next few months," Wang said.

Chen Dongqi, a researcher at a government think-tank affiliated to China's top economic planner, the National Development and Reform Commission, said this month China should loosen

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