China Manufacturing Gauge Drops to Lowest Level in 12 Months

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China's Manufacturing
Workers manufacture cotton yarn at a factory in Dali county, Shaanxi province, China. Premier Li Keqiang has flagged the labor market as key, pledging last month to step in to support the economy if the slowdown hurts jobs and wages. Photographer: Nelson Ching/Bloomberg

A Chinese manufacturing gauge fell to a 12-month low in April, suggesting government efforts to cushion a slowdown are yet to revive the nation’s factories.

The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.2, missing the median estimate of 49.6 in a Bloomberg survey, which was also March’s final reading. Numbers below 50 indicate contraction.

The first reading of the economy’s health in April may deepen concern over a slowdown after first-quarter data showed the weakest economic expansion since 2009. Policy makers have stepped up efforts to halt the slide, cutting banks’ reserve requirements by 1 percentage point this week.

“The growth momentum remains weak in April, which calls for further policy easing,” said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. “The next step might be a cut in interest rates and I expect they will do that this quarter.”

The Shanghai Composite Index closed at the highest level since 2008 after volatile trading.

Measures of new orders and prices deteriorated, with job shedding reported for an 18th month, the survey showed.

Premier Li Keqiang has flagged the labor market as key, pledging last month to step in to support the economy if the slowdown hurts jobs and wages. Gross domestic product expanded 7 percent in the three months through March from a year earlier.

SOE Slump

Highlighting the strains on China’s traditional growth drivers, revenue at state-owned enterprises declined 6 percent to 10.3 trillion yuan ($1.7 trillion) in the January to March quarter from a year earlier, the Finance Ministry said in a statement Thursday. Profits fell 8 percent, weighed by steel, non-ferrous metal, coal and petrochemical industries.

The reserve-requirement ratio was lowered 1 percentage point Monday, the People’s Bank of China said. While that was the second reduction this year, the new level of 18.5 percent is still high by global standards. The cut will allow banks to boost lending by about 1.2 trillion yuan.

The reduction added to the PBOC’s own monetary easing and that of about 30 counterparts around the world this year as policy makers confront the risk of excessively low inflation. Economists are forecasting further RRR and interest-rate reductions this year, according to economists surveyed by Bloomberg this week.

“The soft number implies continued underlying weakness in the manufacturing sector despite stimulative policies rolled out since last November,” said Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong. “Markets will now expect more easing, including on the monetary front.”

— With assistance by Xiaoqing Pi, and Kevin Hamlin

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