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 The poor reading added to signs that the economy has lost momentum
despite two interest rate cuts since November, a reduction in the
amount of money banks must keep in reserve and repeated attempts by
the central bank to reduce financing costs.
The flash HSBC/Markit Purchasing Managers' Index (PMI) dipped to
49.2 in March, below the 50-point level that separates growth in
activity from contraction on a monthly basis. Economists polled by
Reuters had forecast 50.6, slightly weaker than February's final PMI
of 50.7.
Some analysts expect first-quarter economic growth to dip below the
government's new full-year target of 7 percent - widely seen as the
level needed to keep employment steady.
"The weaker PMI data could increase pressure for policy loosening,"
economists at CICC said in a research note.
They predicted the central bank would cut banks' reserve requirement
ratios (RRR) six more times this year, on top of another interest
rate cut.
JPMorgan said the next RRR cut may come as soon as April.
Asia stocks fell after the PMI report on Tuesday, with shares in
Shanghai skidding more than 2 percent, while the Australian dollar
dipped.
However, a separate industry survey released by China Beige Book (CBB)
on Monday showed that while Chinese firms grew even more wary of
borrowing and investing in the first quarter, they still managed to
defend profit margins thanks to lower input costs for commodities
and labor.
"With firm performance and the labor market both in decent shape,
the absence of heavy stimulus should be surprising only to those
analysts who still make policy predictions based on GDP," Leland
Miller, president of CBB, wrote in the report.
JOB SHEDDING
The PMI survey suggested that manufacturers faced considerable
challenges from weaker domestic demand and deflationary risks.
The new orders sub-index fell to a 11-month low of 49.3 in March.
New export orders decreased for a second straight month, albeit at a
slower pace.
Strains on the job market continued to rise, with the employment
sub-index contracting for a 17th straight month and hitting its
lowest since the depths of the global financial crisis.
China's leaders have said they would be willing to tolerate somewhat
slower growth as long as the labor market remained resilient.
"A renewed fall in total new business contributed to a weaker
expansion of output, while companies continued to trim their
workforce numbers," said Annabel Fiddes, an economist at Markit
said.
"Manufacturing companies continued to benefit from falling input
costs, stemming from the recent global oil price decline. However,
relatively muted client demand has led firms to pass on savings in a
bid to boost new work, and cut their selling prices at a similarly
sharp rate."
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In Japan, a similar manufacturing survey added to concerns that its
slowly recovering economy also may be losing momentum, with activity
expanding at a much slower clip as domestic orders contracted.
GROWTH WEAKENING
China's economy faces increased downward pressure this year but the
slowdown is stabilizing, with employment and services among the
bright spots, Vice Premier Zhang Gaoli said on Sunday.
Weighed down by a property downturn, factory overcapacity and local
debt, growth is expected to slow to a quarter-century low of around
7 percent this year from 7.4 percent in 2014, even with expected
additional stimulus measures.
Data so far in 2015 indicate the new growth target may already be at
risk, though the Asia Development Bank said on Tuesday that it still
expects 7.2 percent growth this year.
Annual economic growth could slow to 6.85 percent in the first
quarter from 7.3 percent in the fourth quarter of 2014, the Chinese
Academy of Social Sciences, a top government think-tank, said in a
research report on Sunday.
It expected growth to cool further to 6.8 percent in the second
quarter.
China's third-largest listed lender, Agricultural Bank of China Ltd
(AgBank), late on Tuesday reported weaker-than-expected profit and a
rise in bad loans as slowing economic growth hit borrowers in the
manufacturing, wholesale and retail sectors in particular.
Bad loans to manufacturers rose to 3.69 percent at the end of 2014
from 2.86 percent a year earlier. Those to wholesalers and retailers
more than doubled to 5.93 percent from 2.36 percent.
Meanwhile, central bank governor Zhou Xiaochuan cautioned against
loosening monetary policy abruptly, saying that could undermine
structural reforms.
The government also plans to run its biggest budget deficit in 2015
since the global crisis to boost spending, but analysts doubt
investment will pick up sharply this year given that local
governments are hard-pressed by piles of debt.
(Editing by Kim Coghill and Simon Cameron-Moore)
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