BEIJING--China's economy is showing further signs of flagging,
with an indicator of factory activity this month falling to an
11-month low.
The indicator showed new orders, employment, and prices all
weakening in the manufacturing sector and suggests that
fourth-quarter weakness in the world's No. 2 economy is extending
into the beginning of the new year.
"The figure is much lower than expected, mainly reflecting weak
domestic demand," said Nomura Securities economist Wendy Chen.
"That points to weaker economic growth in the first quarter," she
said, adding that Nomura is sticking with its forecast of 6.9%
year-over-year first-quarter growth, compared with 7.3% growth in
the fourth quarter.
The preliminary HSBC China Manufacturing Purchasing Managers
Index fell to 49.2 in March, compared with a final reading of 50.7
in February, said lender HSBC Holdings PLC and financial data
provider Markit on Tuesday. March's reading slipped below the key
50 level that separates expansion from contraction compared with
the previous month. The last time the index was below 50 was in
January this year, when it fell to 49.7.
The reading is the first gauge after China's Lunar New Year
holiday, which tends to distort economic data for January and
February and so is closely watched. Following the release of the
PMI reading, shares of Hong Kong-listed Chinese firms led the Hang
Seng Index lower by 0.3%, while the Shanghai Composite Index was
down 0.4%, breaking a nine-day winning streak.
The subindexes for new orders, new export orders as well as
employment all fell from the previous month, foreshadowing
expectations for tougher going ahead, HSBC said.
"A renewed fall in total new business contributed to a weaker
expansion of output, while companies continued to trim their
workforce numbers," HSBC economist Qu Hongbin said in a
statement.
Both output and input prices continued to decrease, said HSBC,
suggesting that the country's industrial deflation will likely
worsen, Ms. Chen said.
Weakening factory activity is likely to put pressure on decision
makers to step up their efforts to boost economic growth, said Bob
Liu, an economist with China International Capital Corp.
The central bank will likely bolster growth by cutting benchmark
interest rates once this year and lowering the proportion of
reserves banks are required to maintain six times, he said.
The preliminary PMI figure, also called the HSBC Flash China
PMI, is based on 85% to 90% of total responses to HSBC's PMI survey
each month, and is issued about one week before the final PMI
reading. HSBC PMI is weighted more heavily toward smaller,
private-sector companies, while an official PMI gauge due April 1
focuses more on larger companies.
Liyan Qi
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