China’s manufacturing activity shrank again this month, HSBC said yesterday, hitting a nine-month low and adding to concerns about the strength of the world’s second-biggest economy.
The British banking giant said its preliminary purchasing managers’ index (PMI) came in at 48.3, worse than last month’s final reading of 49.2 and its lowest since September last year.
A reading below 50 indicates contraction, while anything above signals expansion.
The index tracks manufacturing activity in China’s factories and workshops and is a closely watched barometer of the health of the economy.
“Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures,” Qu Hongbin (屈宏斌), HSBC’s chief economist for China, said in the release.
HSBC said it will release the final reading for the month on July 1.
The data follows another batch of weak economic indicators last month that showed industrial output, fixed asset investment — a key measure of government spending — and exports and imports all weakened.
Zhang Zhiwei (張智威), economist at Nomura International in Hong Kong, said in a report that “the fall reinforces our concerns over the downside risks to the economy.”
Economists have grown fearful over the outlook for China’s economy, which grew 7.8 percent last year, its worst performance in 13 years, owing to slack demand for exports in the US and debt-riddled Europe.
The first three months of the year saw expansion of just 7.7 percent, disappointing analysts who had expected growth to accelerate this year after showing strength at the end of last year.
The Chinese government has set a growth target for this year of 7.5 percent, the same as last year’s, as it looks to retool its economic model from exports to domestic consumption.
“Beijing prefers to use reforms rather than stimulus to sustain growth,” Qu said.
“While reforms can boost long-term growth prospects, they will have a limited impact in the short term,” he said, adding that economic growth for the second quarter should weaken slightly.
China is due to announce GDP figures for the three months to the end of June later this month.
The government’s PMI survey for this month is due out on July 1.
The result for last month showed a rebound to 50.8 from 50.6 the month before, a more positive reading than the HSBC survey for that month.
Zhang said that despite weakness in key indicators such as industrial production and fixed asset investment, they “are not collapsing.”
“We believe the government is committed to tolerating short-term pain to achieve its policy objectives — containing financial risks and secure sustainable growth in the long term,” he said.
Analysts from Goldman Sachs cautioned in a joint report that the HSBC figures are historically more closely linked with exports than manufacturing activity in general, which they added sets it apart from China’s official PMI.
“As a result, the official PMI and overall manufacturing activities growth may not be quite as weak as the flash PMI suggests,” they said.
“Nevertheless, we still see clear downside risks to our second quarter and annual GDP forecasts,” which both stand at 7.8 percent, they added.