China Manufacturing Gauge Signals Risk of Deeper Slowdown

China’s manufacturing contracted for a fourth month in April, according to a private survey that missed estimates and sent stocks in the region lower on concern the economy’s slowdown is deepening.

A purchasing managers’ index was at 48.1, HSBC Holdings Plc and Markit Economics said in a statement today. That compared with a 48.4 median estimate from analysts surveyed by Bloomberg News, a preliminary reading of 48.3 and March’s 48. Numbers below 50 indicate contraction.

Hong Kong stocks extended declines on the report, which suggests Communist Party leaders have to do more to set a floor under economic growth after property construction plunged last quarter and expansion cooled. Gross domestic product is projected to increase 7.3 percent this year as the government reins in credit, according to a Bloomberg survey, compared with an official target of about 7.5 percent.

“There is no substantial improvement in terms of momentum,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. The property-market slowdown is having “certainly some impact” on manufacturing, said Ding, who previously worked at the People’s Bank of China and International Monetary Fund.

The Hang Seng Index fell 1.3 percent at the close and the Hang Seng China Enterprises Index of mainland shares, also known as the H-share index, slid 0.6 percent.

Support Package

The State Council has outlined a package of spending on railways and housing and tax relief to support growth and pledged extra efforts to aid exporters. The central bank has also lowered the reserve-requirement ratio for some rural banks by as much as 2 percentage points.

The country last lowered the reserve ratio for large banks in May 2012, to 20 percent. The ratio is “relatively high” and remains a major tool of the nation’s monetary policy, PBOC officials Sheng Songcheng and Zhang Xuan wrote in an article dated May 4 in China Finance, a central bank publication.

China Railway Corp. plans to increase this year’s investment to more than 800 billion yuan ($128 billion) from a previously announced 720 billion yuan, financial news provider Caixin reported on its website last week, citing a videoconference the company held on April 30. The amount had already been raised twice this year from an original 630 billion yuan to 700 billion yuan and then to 720 billion yuan, Caixin said.

Property Market

Cities including Tianjin, Hangzhou and Changsha plan to stimulate the property market by loosening home-purchase limits or letting buyers get household registration by buying homes, according to a report today in the China Securities Journal, which is supervised by the official Xinhua News Agency. Some expensive property projects in Shanghai have cut prices, the newspaper said.

At the same time, officials have been pledging to avoid broader or stronger measures. Finance Minister Lou Jiwei reiterated that China won’t have short-term, large-scale stimulus, according to a statement today on the ministry’s website citing comments made May 3 at a meeting in Astana, Kazakhstan.

“Beijing has introduced more reform measures which could support growth by inducing more private-sector investment,” Qu Hongbin, chief China economist for HSBC in Hong Kong, said in a statement. “We think bolder actions will be required to ensure the economy regains its momentum.”

A reserve-ratio cut is possible, especially if China sees sustained capital outflows, said Yao Wei, China economist at Societe Generale SA in Hong Kong.

‘Remain Weak’

“The economy is still actually suffering from relatively weak growth momentum,” Yao said in a Bloomberg Television interview. “We think the economy will remain weak. The deceleration probably is not over yet.”

Today’s number compared with a reading of 50.4 in a manufacturing index released May 1 by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

HSBC and Markit’s survey indicated the rate of contraction in output and new orders eased from March, while the pace of job cuts accelerated. An index of new export orders was below 50, HSBC and Markit said.

Almost all Chinese provinces failed to meet their growth targets in the first quarter even after scaling back their ambitions as the government instructs officials to focus on reining in debt and curbing pollution.

Thirty of 31 provinces and municipalities reported missing their goals, with the biggest shortfall in northeastern Heilongjiang, where an expansion of 4.1 percent compared with an 8.5 percent target for the year. Most localities’ targets are lower than in 2013.

— With assistance by Paul Panckhurst

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