China manufacturing falls first time in seven months
23 May 2013
The flash HSBC Purchasing Managers' Index (PMI) for May declined to 49.6, sliding below the 50-point level separating contraction from expansion for the first time since October and triggering a sharp fall in Asian financial markets.
China's factory activity was down for the first time in seven months in May with new orders falling, according to a preliminary manufacturing survey, even as fears rose about the slowing economic recovery and prospects of a sharper cool down.
The flash HSBC Purchasing Managers' Index (PMI) for May declined to 49.6, sliding below the 50-point level separating contraction from expansion for the first time since October and triggering a sharp fall in Asian financial markets.
The final HSBC PMI was 50.4 in April.
The lacklustre performance of the world's second-biggest economy implied its ability to meet the government's 7.5 per cent growth target this year was increasingly difficult, according to analysts, though it was still possible.
The less than encouraging data also makes it that much more difficult to act on China's policy dilemma over stabilising activity and tolerating an orderly slowdown. At the same time China would need to focus on cutting its dependence on exports and investment for growth, changes that would bring longer-term benefits.
The performance of the manufacturing sector in China is closely tied up with the global economy due to the nation's role as a powerhouse exporter. Thanks to the large part manufacturing played in China's economy, it also played an important role in shaping domestic policy.
According to noted HSBC economist Hongbin Qu, the cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds.
He added, a sequential slowdown was likely in the middle of the second quarter, casting downside risk to China's fragile growth recovery.
China's growth was at the lowest in 13 years in 2012, but the second biggest economy in the world bounced back in the fourth quarter to post growth of 7.9 per cent, easing concerns about a hard landing.
Growth fell again in the first quarter to 7.7 per cent, a weaker performance than economists were expecting however it was still ahead of the government's annual target of 7.5 per cent.
The weaker-than-expected PMI survey, though came following a fall in the reading for last month and could up pressure on the Chinese government to cut taxes and hike spending to stimulate the economy.
But with no sign of property markets cooling, and increasing concerns over soaring debt levels, monetary policy is likely to remain unchanged, economists point out.
