China manufacturing Copyright ChinaFotoPress, Getty Images

China Manufacturing Barometer at 12-month Low

The index has now contracted in four of the past five months.

BEIJING - An index of China's manufacturing activity fell to a 12-month low in April, HSBC said Thursday, indicating further weakness as growth sputters in the world's second-largest economy.

The British bank's preliminary purchasing managers' index (PMI) came in at 49.2, it said in a statement, below the 49.6 final reading in March.

The index reached 50.7 in February but has now contracted in four of the past five months. The reading was also below the median estimate of 49.6 in a Bloomberg News survey.

The index, compiled by information services provider Markit, tracks activity in China's factories and workshops and is regarded as a barometer of the health of the global economic giant.

A figure above 50 points to growth, but anything below indicates contraction.

China's gross domestic product (GDP) growth slowed to 7% in the first quarter from 7.3% in the final three months of last year, the worst result in six years.

That came after GDP expanded 7.4% in 2014, the slowest full-year rate since 1990.

Authorities have stepped up stimulatory efforts after the first quarter data and disappointingly weak industrial production and retails sales data for March. 

To boost lending the central People's Bank of China (PBoC) cut the level of funds commercial banks must hold in reserve by a full percentage point, the second such reduction this year.

The PBoC has also lowered interest rates twice since November. 

Tepid Manufacturing Demand

Markit economist Annabel Fiddes said the manufacturing sector continued to be plagued by tepid demand, falling prices and a decrease in employment.

"Relatively weak demand conditions were also highlighted by stronger deflationary pressures in the sector, with both input and output prices falling at faster rates. Meanwhile, job shedding across manufacturing firms was recorded for the 18th month in a row."

Citing a bright spot, however, Fiddes said overseas demand improved with export demand rising for the first time in three months.

HSBC said the final PMI data will be announced on May 4.

The government's official PMI earlier this month showed manufacturing activity expanding in March for the first time in 2015, coming in at 50.1.

"The falling HSBC flash PMI... suggests growth momentum may have remained weak in April," Nomura economists wrote in a reaction, adding that they expect the official PMI, scheduled for release on May 1, to decline to 49.8 in April.

They reiterated their expectation that the PBoC will implement two further RRR cuts and three more interest rate reductions this year.

China's leaders are overseeing a managed slowdown in the economy that is meant to ensure more stable expansion based on demand from the country's increasingly wealthy and sophisticated consumers. 

But they are keen to ensure the country avoids a so-called hard landing, in which growth falls sharply and hampers job creation, a pillar of social stability in Communist-ruled China.

Julian Evans-Pritchard, China economist at Capital Economics said despite the drop in the preliminary PMI, the outlook for economic growth was not so dire.

The latest RRR cut "will have come too late to have much impact on today’s reading but should help shore up activity over the coming months", he said in a note.

"And we also expect policymakers to roll out more support measures to ensure that growth doesn’t slip much further."   

Copyright Agence France-Presse, 2015

TAGS: Trade
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