China Manufacturing Contraction May Spur More Easing
China’s manufacturing may shrink for a sixth month in April, maintaining pressure on officials to adopt more policies to stimulate economic growth, a survey of companies showed.
The 49.1 preliminary reading of the purchasing managers’ index from HSBC Holdings Plc and Markit Economics today compares with a final 48.3 in March. A number below 50 points to a contraction.
The contraction, if confirmed in the final reading due May 2, would be the longest since the global financial crisis and may spur the government to lower banks’ reserve requirements a third time since November. A $430 billion expansion of the International Monetary Fund’s lending power in Washington talks ending yesterday may help contain Europe’s debt turmoil and shore up demand in China’s biggest export market.
“The numbers in recent months have never been that good but don’t show signs of falling off a cliff either,” Paul Cavey, a Hong Kong-based economist with Macquarie Securities Ltd., said of the HSBC PMI. “Today’s number would suggest continuation of the government’s current policy of slow, cautious loosening.”
The benchmark Shanghai Composite Index fell 0.1 percent at 1:36 p.m. local time.
Premier Wen Jiabao is trying to avert a deeper slowdown in the world’s second-biggest economy that will restrain world growth as U.S. expansion shows signs of moderating.
“The earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown,” Qu Hongbin, Hong Kong-based chief China economist for HSBC Holdings Plc, said in a statement. “That said, the pace of both output and demand growth remains at a low level in an historical context and the job market is under pressure. This calls for additional easing measures in the coming months.”
China’s economy expanded 8.1 percent in the first three months from a year earlier, the least in almost three years and the fifth straight slowdown, as export growth slumped and Wen waged a campaign to cool consumer and property prices.
The economy still faces “downward pressures,” according to a report of an April 13 State Council meeting chaired by Wen. The cabinet reiterated the government will preemptively adjust and fine-tune policies and maintain an appropriate level of investment.
The central bank lowered lenders’ reserve requirements in February for the second time in three months to spur lending and boost growth. Banks including Morgan Stanley and Deutsche Bank AG have raised their China growth forecasts partly on anticipation that authorities may further ease policies to prop up economic expansion.
New local-currency loans rose last month to 1.01 trillion yuan ($160 billion), the highest in more than a year.
Today’s preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies, according to HSBC.
A separate index from China’s logistics federation and the National Bureau of Statistics, which has a different sample and methodology, showed manufacturing expanded for a fourth month in March. Its April reading is scheduled to be released on May 1.
Preliminary readings on a purchasing managers’ index in Europe may signal improvement. The Markit Economics euro-area composite manufacturing and services index is forecast to show a smaller contraction in April than in March, according to economists surveyed by Bloomberg News.
Elsewhere in the Asia-Pacific region, prices paid by Australian producers unexpectedly fell last quarter for the first time in more than two years. Inflation in Hong Kong probably quickened to 4.9 percent in March, based on the median estimate of analysts ahead of a report today.
Property Market Drop
China’s growth may slow before rebounding in the second half as the property market declines further, Li Daokui, a former central bank adviser, said in an April 18 interview with Bloomberg Television.
Today’s report showing a smaller contraction “reinforces our view that economic growth bottomed” in the first quarter, Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, said in a research note today. Still, the figure “indicates a rather moderate recovery,” said Zhang, who forecasts looser monetary and fiscal policy this quarter, including a reserve-requirement ratio cut in May.
Chinese industrial companies had their first January- February profit decline since 2009, a government report showed on March 27.
Maanshan Iron & Steel Co., the second-biggest Hong Kong- traded steelmaker, said this month it may be unprofitable in the first half as slower economic growth curbs demand. Steelmakers in China, the world’s biggest producer, incurred losses totaling more than 1 billion yuan in the first quarter, according to data from the China Iron and Steel Association.
--Zheng Lifei. With assistance from Lily Nonomiya in Tokyo. Editors: Nerys Avery, Scott Lanman
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