New worries on China growth as flash PMI shows contraction

Mar 24 2014, 11:47 IST
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A string of weak economic indicators in China this year has reinforced concerns about a slowdown. A string of weak economic indicators in China this year has reinforced concerns about a slowdown.
SummaryAs per HSBC survey, China's PMI fell to 8-month low of 48.1 in March from February's 48.5.

China's manufacturing engine contracted in the first quarter of 2014, a preliminary private survey showed on Monday, raising market expectations of government stimulus to arrest a loss of momentum in the world's second-largest economy this year.

The weaker-than-expected survey knocked the country's main share index and other Asian markets off early highs, and lopped around a quarter of a U.S. cent from the Australian dollar, which is often used as a proxy for Chinese risk.

The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.1 in March from February's final reading of 48.5. The index has been below the 50 level since January, indicating a contraction in the sector this year.

Output and new orders both weakened but new export orders grew for the first time in four months, the survey showed, suggesting the slowdown has been driven primarily by weak domestic demand.

"Usually, for the month of March, the PMI will rebound, because after Chinese New Year, there should be some activity coming back, but this PMI is disappointing," said Wei Yao, China economist at Societe Generale in Hong Kong. "The government probably will have to provide some supporting measures."

"I think the slowdown is not over yet and our expectation is that the deceleration will continue into Q2," she added.

The CSI300 index of the leading Shanghai and Shenzhen A-share listings shed all its gains after the data, before recovering some ground, while Hong Kong shares pared early gains of more than 1.5 percent.

The Markit/HSBC PMI is weighted more towards smaller and private companies than the official index, which contains more large and state-owned firms and has showed slight but slowing growth in the first two months of this year.

Both the final Markit/HSBC manufacturing PMI and the official manufacturing PMI for March are due on April 1.

STIMULUS?

A string of weak economic indicators in China this year has reinforced concerns about a slowdown.

"We expect Beijing to launch a series of policy measures to stabilise growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower," said Hongbin Qu, chief China economist at HSBC, in a note accompanying the PMI data.

Earlier this month, sources told Reuters the central bank was prepared to loosen monetary policy in order to keep the economy growing at 7.5 percent. Last year, China's economy grew 7.7 percent, the same pace as in 2012.

And Premier Li

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