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 The latest indication of deepening factory woes raises the risk
that second-quarter economic growth may dip below 7 percent for the
first time since the depths of the global crisis, adding to official
fears of job losses and local-level debt defaults.
The HSBC/Markit Purchasing Managers' Index (PMI) fell to 48.9 in
April - the lowest level since April 2014 - from 49.6 in March, as
demand faltered and deflationary pressures persisted.
The number was weaker than a preliminary reading of 49.2, and below
the 50-point level that separates growth from contraction compared
with the previous month.
"China's manufacturing sector had a weak start to Q2, with total new
business declining at the quickest rate in a year while production
stagnated," said Annabel Fiddes, an economist at Markit.
"The PMI data indicate that more stimulus measures may be required
to ensure the economy doesn't slow from the 7 percent annual growth
rate seen in Q1.”
The overall new orders sub-index dipped to 48.7 in April, the
sharpest contraction in a year. That suggested a marked
deterioration in domestic demand, as new export orders showed
tentative signs of improvement.
Both input and output prices declined for a ninth month, while
manufacturers shed jobs for an 18th month, auguring poorly for an
economy that grew at its weakest rate for six years in the first
quarter.
An official survey released on Friday showed China's factories
struggled to grow in April as domestic and export demand remained
weak. The official number of 50.1 was the weakest reading for the
month of April since the data started in 2005, HSBC noted.
The private survey focuses on small and mid-sized firms, while the
official one looks at larger, state-owned companies.
China will release its April economic data over the coming weeks,
starting with trade on Friday.
GROWTH COOLING
Aside from weakness in the manufacturing sector, China is struggling
with a downturn in its property market, slowing investment and high
levels of domestic debt.
On Thursday, the Politburo, the ruling Communist Party's top
decision-making body, said that authorities will step up policy
"adjustments" and urged further tax cuts. It also said the
government must resolve financing glitches that are holding up big
infrastructure projects.
Analysts believe the Politburo's emphasis on stabilizing growth
signaled top leaders' increasing concerns about a sharper slowdown.
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Economic growth is expected to slow further to 6.8 percent in the
second quarter from 7 percent in the previous quarter, the State
Information Center, a top government think tank, said in a research
report published on Monday.
Millions of workers lost their jobs when China's growth tumbled to
6.6 percent in early 2009. A massive stimulus package pulled the
economy out of the slump, but at the cost of saddling local
governments with a mountain of debt.
The think-tank, which is affiliated to the National Development and
Reform Commision, the top planning agency, called for interest rate
cuts of 50 basis points in the first half, coupled with reductions
in banks' reserves requirements.
The People's Bank of China last cut benchmark interest rates by 25
bps on Feb. 28 - its second cut since November.
The central bank has also reduced banks' reserve requirements (RRR)
twice this year, by a total of 150 basis points, in a bid to boost
their lending power, while home purchase rules have been eased to
help the real estate market.
The think-tank also urged the government to lower the yuan
currency's real effective exchange rate by 1-2 percent this year to
help boost exports.
"Underlying economic activity appears to have slowed further from
March, warranting more aggressive easing measures in the coming
weeks in order for the economy to stabilize toward mid-year," Julia
Wang, China economist at HSBC, said in a note.
Wang also expects a 25-bps rate cut in the second quarter.
Most economists believe China's economic growth could cool to a
quarter-century low of around 7 percent this year from 7.4 percent
in 2014.
(Reporting by Kevin Yao; Editing by Simon Cameron-Moore & Kim
Coghill)
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