China PMI steadies, but doesn't dispel growth worries

BEIJING Thu May 1, 2014 11:22am IST

An employee works at a textile factory in Wuhan, Hubei province, April 30, 2014. REUTERS/Stringer/Files

An employee works at a textile factory in Wuhan, Hubei province, April 30, 2014.

Credit: Reuters/Stringer/Files

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BEIJING (Reuters) - Activity in China's factories increased marginally in April but export orders fell sharply, a government survey showed on Thursday, adding to questions about whether the world's second-largest economy is stabilising after its first-quarter slowdown.

The data came a day after Premier Li Keqiang pledged to step up support for the trade sector, adding to measures taken over the past month on concerns that the economy may be losing momentum more quickly than expected.

The Purchasing Managers' Index rose to 50.4 in April from March's 50.3, the National Bureau of Statistics said, one of the first indicators of how the economy started the second quarter.

At just above the 50 level that separates growth from contraction, it indicated a slight pick-up in activity for the month, although it was a notch below economists' expectations.

Zhang Liqun, an economist at the Development Research Centre, which helps compile the PMI, said the index pointed to stabilising economic growth ahead, but others disagreed.

"We do not believe the economy has passed a turning point," said Zhiwei Zhang, China economist at Nomura.

Zhang expected annual economic growth to slow to 7.1 percent in the second quarter from an 18-month low of 7.4 percent in the first, adding the risks were to the downside.

The new orders sub-index in the PMI rose to 51.2 in April from 50.6 in March, but the sub-index for export orders fell to 49.1 last month from 50.1 in March.

Data last month showed exports fell in annual terms for a second straight month in March, the weakest run since 2009.

The official PMI is weighted more towards bigger and state-owned enterprises and tends to paint a rosier picture than a PMI compiled by HSBC and Markit Economics, which focuses more on smaller private firms.

A preliminary reading of the HSBC/Markit PMI last week showed factory activity shrank for a fourth straight month in April, although at a slower pace than in March. The final reading is due on Monday.

COOLING PROPERTY

Sun Wencun, an economist at CITIC Securities in Beijing, said exports could benefit from a recovery in developed economies but the property sector was a big concern.

"The economy is showing slight improvements due to recent policy measures but there is no sign of a bottoming out, and the trend of slowdown is continuing as the sluggish property market weighs on related industries," he said.

Analysts see the property sector as a key risk to growth as evidence mounts of a rapid cooling in what had been one of the few strong spots in the economy.

The rate of growth in home prices slowed in April, two private surveys showed on Thursday. The property sector supports some 40 other industries, ranging from cement to furniture, and plays an important role in underpinning consumer confidence.

The property market has lost steam since late 2013 after authorities tightened controls on speculative buying and banks made it harder for home buyers and small developers to get loans.

Official media reported this week that the southern city of Nanning, has eased rules on house buying in an effort to boost the local economy, raising speculation it could be the start of a series of local-level support measures.

JOBS GROWTH

The government is trying to restructure the economy so it is driven more by consumption than the traditional engines of exports and investment, but wants to avoid a sharp slowdown that could fuel job losses and threaten social stability.

The employment sub-index of the PMI held steady at 48.3 in April, indicating contraction. The government has taken steps to create more jobs, particularly for college graduates. Premier Li has said that the economy must grow 7.2 percent annually to create 10 million jobs a year.

A Reuters poll found economic growth is forecast to slow to 7.3 percent in the second quarter. For 2014, growth of 7.3 percent is expected - the weakest showing in 24 years and down from 7.7 percent last year. Respondents also expected the central bank to cut the amount of deposits that banks must hold as reserves by 50 basis points in the third quarter.

(Editing by John Mair)

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