Factory activity in China shrank for the fourth straight month this month, though the decline was slightly slower, a survey yesterday showed, in a possible sign the slowdown in the world’s No. 2 economy is stabilizing.
Meanwhile, the Chinese yuan extended its downtrend against the US dollar to hit a 16-month low yesterday, despite the country’s central bank fixing its trading point for the unit at a higher level.
HSBC’s preliminary report on China’s purchasing managers index (PMI) showed that the index edged up to 48.3 from last month’s 48. Numbers above 50 indicate an expansion.
The report said output and new orders decreased at a slower rate. However, export orders shrank after expanding the previous month.
The report comes after China last week said economic growth slowed further in the first quarter to 7.4 percent, though it still looked robust enough to satisfy authorities in Beijing who are trying to guide the economy to more sustainable growth without politically dangerous job losses.
Beijing has ruled out sweeping stimulus to stimualte growth, but leaders have introduced small-scale measures to boost certain sectors, such as tax cuts for small businesses and speeding up construction of railways and public housing.
“China’s economy is still likely to slow further this quarter, but the slowdown appears to be moderating, helped in part by the government’s move to support growth with spending on railways and social housing,” said Julian Evans-Pritchard, China economist at Capital Economics in Singapore.
HSBC chief China economist Qu Hongbin (屈宏斌) said that while the initial impact of the most recent mini stimulus is likely be limited, leaders have “signaled readiness to do more if necessary” and further measures may be unveiled in the coming months.
The PMI is based on 85 to 90 percent of responses from about 420 factories. The final version is to be released on May 5.
Meanwhile, the yuan fell to as low as 6.2458 to the US dollar yesterday morning, its weakest level since December 2012. That compared with Tuesday’s close of 6.2370, according to the China Foreign Exchange Trade System.
However, the People’s Bank of China had set the mid-point for trading at 6.1599, compared with 6.1610 on Tuesday. The central bank keeps a grip on the currency, but allows it to move up or down 2 percent on either side of a daily-set point.
The yuan has fallen repeatedly in recent months, with many dealers believing the depreciation is a deliberate move by the central bank to target speculative funds betting on continued rises. However, traders have also cited the slowing economy as a crucial factor.
The unit, which is also known as the renminbi, has fallen more than 3 percent so far this year, erasing gains of the amount last year.
“The depreciation ... since mid-February has to some extent defied market expectations for one-way appreciation, so now expectations towards the renminbi are divided,” said Jiang Shu (蔣舒), a foreign exchange analyst with Industrial Bank Co (興業銀行).
“Expectations towards the domestic economy will certainly affect renminbi prices, but the impact should not be overestimated,” he said.