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 Concern about the health of the Chinese economy knocked the
country's main share index and other Asian markets lower, and lopped
around a quarter of a U.S. cent from the Australian dollar, which is
often used as a liquid 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 early gains after the data, while Hong Kong
shares pared gains of more than 1.5 percent to be 0.9 percent
higher.
The preliminary Markit/HSBC March index showed new orders slid for a
fourth consecutive month, to 46.9, the lowest since July 2013, while
output fell to an 18-month low of 47.3.
There was a substantial increase in the employment sub-index, though
the number remained below 50.
Finance Minister Lou Jiwei said this month that a healthy labor
market was more important than reaching the government's 2014 growth
target of about 7.5 percent.
"Weakness is broadly-based with domestic demand softening further,"
said Hongbin Qu, chief economist for China at HSBC, in a comment
accompanying the PMI data.
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"We expect Beijing to launch a series of policy measures to
stabilize growth. Likely options include lowering entry barriers for
private investment, targeted spending on subways, air-cleaning and
public housing, and guiding lending rates lower."
A string of weak economic indicators this year has reinforced
concerns about a slowdown in the world's second-largest economy.
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. [ID:nL3N0M8207] Last year, China's economy
grew 7.7 percent, the same pace as in 2012.
Premier Li Keqiang said last week investment and construction plans
would be accelerated to ensure domestic demand expands at a stable
rate.
The government wants to reduce the economy's dependence on exports
and enhance the role of consumption, but it is unclear how much
growth it might be willing to sacrifice to achieve that.
The Chinese yuan hit a 13-month low on Friday, which traders and
analysts attributed in part to attempts by the central bank to curb
betting on its appreciation. A weaker yuan could help exports, which
stumbled in February.
The Markit/HSBC PMI is weighted more towards smaller and private
companies than the official index, which contains more large and
state-owned firms.
Both the final Markit/HSBC manufacturing PMI and the official
manufacturing PMI for March are due on April 1.
(Additional reporting by Wang Lan; editing by Richard Borsuk and
John Mair)
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