Mar 25, 2015

    Chinese factory activity at '11-month low'


    ACTIVITY in China's factory sector dipped to an 11-month low this month as new orders shrank, a private survey showed, signalling persistent weakness in the world's second-largest economy that will likely fuel calls for more policy easing to support growth.

    The poor reading added to signs that the economy has lost momentum despite two interest rate cuts since November, a reduction in the amount of money that banks must keep in reserve and repeated attempts by the central bank to reduce financing costs.

    The flash HSBC/Markit Purchasing Managers' Index (PMI) dipped to 49.2 this month, below the 50-point level that separates growth in activity from contraction on a monthly basis. Economists polled by Reuters had forecast 50.6, slightly weaker than last month's final PMI of 50.7.

    Some analysts expect first-quarter economic growth to dip below the government's new full-year target of 7 per cent - widely seen as the level needed to keep employment steady. "The weaker PMI data could increase pressure for policy loosening," economists at China International Capital Corporation said in a research note.

    They predicted that the central bank would cut banks' reserve requirement ratios six more times this year, on top of another interest rate cut.

    JPMorgan said the next reserve requirement ratio cut may come as soon as next month.

    Asia stocks fell after the release of the PMI report yesterday, with shares in Shanghai skidding more than 2 per cent, while the Australian dollar dipped.

    However, a separate industry survey released by the China Beige Book on Monday showed that while Chinese firms grew even more wary of borrowing and investing in the first quarter, they still managed to defend profit margins thanks to lower input costs for commodities and labour.