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China Factory Activity Shrinks for Fifth Straight Month China Factory Activity Shrinks for Fifth Straight Month
(about 4 hours later)
BEIJING — Activity in China’s factories shrank for a fifth straight month in March as output and new orders both weakened, a preliminary private survey showed on Monday. BEIJING — China’s manufacturing sector contracted in the first quarter of 2014, a preliminary private survey showed on Monday, raising market expectations for a government stimulus effort to reverse a slowing in economic growth.
The flash Markit/HSBC Purchasing Managers’ Index fell to an eight-month low of 48.1 in March from February’s final reading of 48.5. Speculation about possible stimulus helped the renminbi to rebound sharply against the dollar, in the currency’s biggest daily gain in nearly 30 months.
A reading below 50 indicates a contraction, while one higher than that shows expansion. The early reading of the Markit/HSBC factory purchasing managers’ index fell to an eight-month low of 48.1 in March from a final reading in February of 48.5. The index has been below the 50 level, indicating a contraction in the sector, since January.
The preliminary March index showed new orders slid for a fourth consecutive month, to 46.9 — its lowest point since July 2013, while output fell to 47.3, the lowest since September 2012. Output and new orders weakened, but new export orders grew for the first time in four months, the survey showed, suggesting the contraction has been driven primarily by weak domestic demand.
New export orders grew for the first time in four months, suggesting that the mild slowdown China is facing, which has caused some jitters in global markets, has been driven primarily by weak domestic demand. “Usually, for the month of March, the P.M.I. will rebound, because after Chinese New Year, there should be some activity coming back, but this P.M.I. is disappointing,” said Wei Yao, China economist at the French bank Société Générale in Hong Kong. “The government probably will have to provide some supporting measures.”
Another encouraging sign was a substantial increase in the employment subindex, though the number remained below 50. The CSI 300 index of leading shares listed in Shanghai and Shenzhen shed all its gains after the data was released, before recovering some ground.
China’s finance minister, Lou Jiwei, said in early March that a healthy labor market is more important than reaching the government’s 2014 growth target of about 7.5 percent. Also Monday, the renminbi closed at 6.1888 per dollar, up 0.6 percent from Friday’s close of 6.2250, the biggest jump since October 2011. It hit 6.1882 in afternoon trade. The Chinese currency fell to a 13-month low last week with a 1.2 percent weekly loss, its biggest weekly drop, as investors fretted over the outlook of the economy.
“Weakness is broadly based with domestic demand softening further,” Hongbin Qu, chief economist for China at HSBC, said in a comment accompanying the PMI data. This year, a string of weak economic indicators in China has reinforced concerns about a slowdown.
“We expect Beijing to launch a series of policy measures to stabilize growth,” he said. “Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.” “We expect Beijing to launch a series of policy measures to stabilize growth,” Hongbin Qu, chief China economist at HSBC, said in a note accompanying the index data. “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 so far this year, including surprisingly weak exports in February, has reinforced concerns about a slowdown in the world’s second-largest economy. The Markit/HSBC index is weighted more toward smaller and private companies than the official purchasing managers’ index, which contains more large and state-owned companies and has showed slight but slowing rates of growth in the first two months of this year.
Last year, China’s economy grew 7.7 percent. That was steady from 2012 and fractionally above market expectations of 7.6 percent, which would have made 2013’s growth pace the slowest since 1999. The final Markit/HSBC manufacturing index and the official manufacturing index for March are due on April 1.
Prime Minister Li Keqiang said last week that China will speed up investment and construction plans to ensure domestic demand expands at a stable rate. Prime Minister Li Keqiang said last week that investment and construction plans would be accelerated to ensure domestic demand expands at a stable rate.
The government has said it would like to reduce the economy’s dependence on exports and enhance the role of domestic consumption, but it is unclear how much growth it might be willing to sacrifice to reach that goal. Zhiwei Zhang, chief China economist at Nomura in Hong Kong, said he expected the Chinese central bank to cut its reserve requirement ratio in the second quarter and third quarter, which would free up money for banks to lend. He added that the bank might adopt expansionary fiscal policies to keep economic growth above 7 percent.
The Chinese renminbi hit a 13-month low on Friday, which traders and analysts attributed in part to attempts by the central bank to curb betting on the currency’s appreciation. A weak renminbi also helps exports, which stumbled in February.
The Markit/HSBC P.M.I. is weighted more toward 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.