New worries on China growth as flash PMI shows contraction

Mon Mar 24, 2014 12:55am EDT
 
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By Adam Rose

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

The weaker-than-expected survey knocked the country's main share index and other Asian markets off early highs, and lopped around a quarter of a U.S. cent from the Australian dollar, which is often used as a proxy for Chinese risk.

The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to an eight-month low of 48.1 in March from February's final reading of 48.5. The index has been below the 50 level since January, indicating a contraction in the sector this year.

Output and new orders both weakened but new export orders grew for the first time in four months, the survey showed, suggesting the slowdown has been driven primarily by weak domestic demand.

"Usually, for the month of March, the PMI will rebound, because after Chinese New Year, there should be some activity coming back, but this PMI is disappointing," said Wei Yao, China economist at Societe Generale in Hong Kong. "The government probably will have to provide some supporting measures."

"I think the slowdown is not over yet and our expectation is that the deceleration will continue into Q2," she added.

The CSI300 index of the leading Shanghai and Shenzhen A-share listings shed all its gains after the data, before recovering some ground, while Hong Kong shares pared early gains of more than 1.5 percent.

The Markit/HSBC PMI is weighted more towards smaller and private companies than the official index, which contains more large and state-owned firms and has showed slight but slowing growth in the first two months of this year.   Continued...

 
An employee works above a furnace containing molten steel at a factory of Dongbei Special Steel Group Co. Ltd. in Dalian, Liaoning province January 30, 2014. REUTERS/China Daily