Media Moves

Coverage: China manufacturing down

May 4, 2015

Posted by Liz Hester

The news out of China continues to be disappointing with manufacturing putting in one of its worst performances. That’s not good news for those looking to the economic giant for growth.

The Wall Street Journal story by Liyan Qi had these details:

China’s manufacturing sector in April turned in its weakest performance in a year, according to a private gauge of the country’s factory activity, suggesting that Beijing may need to speed up its efforts to boost the economy.

The private-sector HSBC manufacturing Purchasing Managers Index fell to a final reading of 48.9 in April from 49.6 in March, HSBC Holdings PLC said Monday. It was the lowest level since April 2014 when the reading came in at 48.1—well below the 50 level that separates expansion from contraction.

“The economy hasn’t bottomed out yet,” said Larry Hu, an economist at Macquarie Securities. “There will be more stimulus measures.”

The reading also contrasted with the official manufacturing Purchasing Managers Index, which was released on Friday and came in at 50.1—in expansion territory and rising at the same rate as in March.

Analysts said the sharply different readings reflect the greater weighting given to smaller, export-led companies in the private survey. The official measure has a greater proportion of big state companies.

Kelvin Chan of the Associated Press reported that this could push government officials to provide more stimulus:

The latest reading, which is worse than a preliminary reading of 49.2 released in late April, highlights growing urgency for policymakers in Beijing to step in with more stimulus measures to prevent a sharper slowdown as economic growth cools. Recent figures showed that the economy expanded at its slowest pace in six years in the first three months of the year.

“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 the first quarter,” said Annabel Fiddes, economist at Markit, which carried out the survey.

Beijing has taken action several times this year to boost the economy even as leaders have reaffirmed their commitment to a “new normal” of slower growth. In the most recent move, the central bank last month slashed the reserve requirement ratio for banks by a full percentage point to make more money available for lending.

HSBC’s index comes after an official survey by the China Federation of Logistics and Purchasing found that manufacturing activity barely eked out growth for a second month in April.

Peter Wells wrote for the Financial Times that investors in the region weren’t happy with the outlook:

Investors contended with a raft of second-tier economic data from private surveys that painted a relatively soft picture of conditions around the region.

In South Korea, manufacturing activity contracted last month to its lowest level since October, with HSBC’s manufacturing PMI sliding from 49.2 in March to 48.8 for April. The Kospi, however, took the numbers in its stride, rising 0.4 per cent.

Johanna Chua, chief Asia economist at Citigroup, said that global growth was “not yet reflationary” for Asia, and that economic activity across the region was falling short of market expectations.

In spite of spending most of the morning in positive territory, Australia’s S&P/ASX 200 swung into the red by midday trading in Sydney time, with hefty declines among banking stocks.

The Reuters story by Michelle Chan pointed out that officials were allowing the yuan to have a weaker trading point against the dollar. While it’s not open market, it does signal that they understand investors aren’t happy:

Spot market trade in the yuan opened at 6.2078 per dollar and it was changing hands at 6.2079 at midday, 51 pips weaker than the previous close and 1.49 weaker than the midpoint.

The People’s Bank of China set the midpoint rate at 6.1165 per dollar prior to market open, weaker than the previous fix of 6.1137.

The spot rate is allowed to trade with a range 2 percent above or below the official fixing on any given day.

Market participants are expecting more stimulas measures to shore up China’s sluggish economy. UBS expected an interest rate cut in the second quarter and at least another 100 basis points cut in banks’ reserve requirement ratios (RRR) this year.

The offshore yuan was trading 0.11 percent weaker than the onshore spot at 6.2149 per dollar.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan’s value, traded at 6.2795, or 2.60 percent weaker than the midpoint.

China has been such a growth engine for so long, it’s hard for people to content with it slowing down. While it’s just one set of numbers, many have been waiting for the government to offer some stimulus to keep the economy on track to grow as much as expected. Many investors are starting to question when things are going to start looking up.

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