New worries on China growth as flash PMI shows contraction

BEIJING Mon Mar 24, 2014 10:26am IST

An employee works above a furnace containing molten steel at a factory of Dongbei Special Steel Group Co. Ltd. in Dalian, Liaoning province January 30, 2014. REUTERS/China Daily/Files

An employee works above a furnace containing molten steel at a factory of Dongbei Special Steel Group Co. Ltd. in Dalian, Liaoning province January 30, 2014.

Credit: Reuters/China Daily/Files

Related Topics

Rajalakshmi (C), 28, smiles after winning the Miss Wheelchair India beauty pageant in Mumbai November 26, 2014. REUTERS/Danish Siddiqui

Miss Wheelchair India

Seven women from across India participated in the country's second wheelchair beauty pageant, which aims to open doors for the wheelchair-bound in modelling, film and television, according to organisers  Slideshow 

BEIJING (Reuters) - 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.


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 Keqiang said last week investment and construction plans would be accelerated to ensure domestic demand expands at a stable rate.

Zhiwei Zhang, chief China economist at Nomura in Hong Kong, expects the central bank to cut its reserve requirement ratio in the second quarter and third quarter, which would free up funds for banks to lend, and perhaps adopt expansionary fiscal policy in order to keep growth from dropping below 7 percent.


Finance Minister Lou Jiwei has said a healthy labour market was more important than reaching the government's 2014 growth target of about 7.5 percent.

The Markit/HSBC PMI showed a substantial increase in the employment sub-index, though the number remained below 50. It is

one of the few indicators to measure the health of China's labour market, an area of priority for Beijing as it sees low unemployment as a means to maintain social stability.

"We don't expect a significant stimulus response from the authorities. The labour market, now policymakers' primary concern, remains healthy," Julian Evans-Pritchard, Asia Economist at Capital Economics in Singapore, said in a note.

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 goal.

Last week, the yuan fell to 13-month lows, 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.

(Additional Reporting by Wang Lan; Editing by John Mair)



WTO Trade Deal

WTO Trade Deal

WTO clinches first global trade deal in its history  Full Article 

Kashmir Attack

Kashmir Attack

Ten dead in Kashmir's worst militant attack in more than a year  Read 

OPEC Meeting

OPEC Meeting

Saudis block OPEC output cut, oil price sinks further.  Full Article 

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

GDP, RBI Preview

GDP, RBI Preview

GDP growth set to weaken, business wants reforms more than rate cut  Full Article | Related Story 

Jaitley to Rajan

Jaitley to Rajan

Jaitley likely to meet Rajan on Monday to urge rate cut  Full Article 

Banking Sector

Banking Sector

India moves to allow more businesses to offer basic financial services.  Full Article 

Jamini Roy

Jamini Roy

Photo Gallery – Bengali household name Jamini Roy’s paintings  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage