China’s factories last month suffered their fastest drop in activity in a year as new orders shrank, a private business survey showed yesterday, hardening the case for fresh stimulus measures to halt a slowdown in the world’s second-largest economy.
The latest indication of deepening factory woes raises the risk that second-quarter economic growth may dip below 7 percent for the first time since the depths of the global crisis, adding to official fears of job losses and local-level debt defaults.
The HSBC/Markit purchasing managers’ index (PMI) fell to 48.9 last month — the lowest level since April last year — from 49.6 in March, as demand faltered and deflationary pressures persisted.
The number was weaker than a preliminary reading of 49.2, and below the 50-point level that separates growth from contraction compared with the previous month.
“China’s manufacturing sector had a weak start to Q2, with total new business declining at the quickest rate in a year while production stagnated,” Markit economist Annabel Fiddes said.
“The PMI data indicate that more stimulus measures may be required to ensure the economy doesn’t slow from the 7 percent annual growth rate seen in Q1,” she said.
The overall new orders sub-index dipped to 48.7 last month, the sharpest contraction in a year. That suggested a marked deterioration in domestic demand, as new export orders showed tentative signs of improvement.
Input and output prices declined for a ninth month, while manufacturers shed jobs for an 18th month, auguring poorly for an economy that grew at its weakest rate for six years in the first quarter.
An official survey released on Friday last week showed China’s factories struggled to grow last month as domestic and export demand remained weak.
The official number of 50.1 was the weakest reading for the month of April since the data started in 2005, HSBC said.
The private survey focuses on small and mid-sized firms, while the official one looks at larger, state-owned companies.
China will release its economic data for last month over the coming weeks, starting with trade on Friday.
Aside from weakness in the manufacturing sector, China is struggling with a downturn in its property market, slowing investment and high levels of domestic debt.
On Thursday last week, the politburo said that authorities will step up policy “adjustments” and urged further tax cuts.
It also said the government must resolve financing glitches that are holding up big infrastructure projects.
Analysts believe the politburo’s emphasis on stabilizing growth signaled top leaders’ increasing concerns about a sharper slowdown.
Economic growth is expected to slow further to 6.8 percent in the second quarter from 7 percent in the previous quarter, the State Information Center, a top government think tank, said in a research report publishes yesterday.
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