China's HSBC PMI For March Hits 48.0, An 8-Month Low; Manufacturing Slowdown Continues

 
on March 31 2014 10:15 PM
China shoe factory
Employees apply glue to the bottom part of shoes along a production line at a factory in Wenzhou, Zhejiang province on Oct. 11, 2013. Reuters/William Hong

BEIJING (Reuters) -- China's manufacturing engine contracted in the first quarter of 2014, a private survey showed Tuesday, adding to market expectations of government stimulus to arrest a loss of momentum in the world's second-largest economy this year.

The final Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.0 in March from February's final reading of 48.5. The outcome was in line with last week's preliminary PMI reading of 48.1.

The index has been below the 50 level since January, indicating a contraction in the sector this quarter.

"The final reading of the HSBC China Manufacturing PMI in March confirmed the weakness of domestic demand conditions," said Hongbin Qu, HSBC's chief China economist, in a statement accompanying the survey.

"This implies that first quarter GDP growth is likely to have fallen below the annual growth target of 7.5 percent."

Earlier, the National Bureau of Statistics' official PMI rose to 50.3 in March from the previous month's 50.2, in line with forecasts.

The HSBC/Markit PMI is weighted more toward smaller and private companies than the official index, which contains more large and state-owned firms.

A string of weak economic indicators in China this year has reinforced concerns about a slowdown. Premier Li Keqiang said last week the necessary policies were in place and the government would push ahead with infrastructure investment.

"We expect Beijing to fine-tune policy sooner rather than later to stabilize growth," said Qu, of HSBC.

In the Markit/HSBC PMI, output and new orders weakened but new export orders grew for the first time in four months, suggesting the slowdown has been driven primarily by weak domestic demand.

There was a substantial increase in the employment sub-index, though it remained below 50. The labor market is an area of priority for Beijing as it sees low unemployment as vital  to maintaining social stability.

Last month, sources told Reuters the central bank was prepared to loosen monetary policy in order to keep the economy growing at 7.5 percent.

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.

(Reporting by Adam Rose, editing by John Mair)

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