Apr 24, 2014

    Flat China economy sends yuan to a low


    CHINA'S economy has yet to respond to policymakers' stimulus efforts, an April manufacturing gauge indicated yesterday, helping send the yuan to a 16-month low.

    The preliminary Purchasing Managers' Index from HSBC Holdings and Markit Economics was 48.3 this month, matching the median estimate of analysts surveyed by Bloomberg News.

    The reading rose from last month's final figure of 48 while remaining below the expansion-contraction dividing line of 50.

    Sustained weakness in manufacturing would pressure Premier Li Keqiang to expand pro-growth measures beyond a required-reserves cut for rural banks yesterday and what some analysts have dubbed a "mini stimulus" package of railway spending and tax relief.

    The report followed data last week showing China's expansion moderated to the slowest pace in six quarters.

    "We do not believe that this uptick in the HSBC PMI signals any sort of turning point for the economy and continue to believe that growth momentum is on a downtrend," Zhang Zhiwei, chief China economist at Nomura Holdings in Hong Kong, said in a note.

    He reiterated his forecast for a broader reserve-ratio cut for banks next month or in June.

    Estimates of yesterday's number from 25 analysts ranged from 47.5 to 49.4.

    The yuan fell to as low as 6.2466 to the dollar, its weakest level since December 2012, according to Dow Jones Newswires. But it closed at 6.2373, only slightly weaker than Tuesday's close of 6.2370, according to the China Foreign Exchange Trade System.

    The State Council, or Cabinet, on April 2 outlined a package of spending on railways and housing and tax relief to support growth. The government said on Sunday that China will start construction on a batch of major energy projects as part of efforts to stabilise expansion and adjust the nation's energy structure.

    The People's Bank of China yesterday cut the reserve requirement ratio for some rural banks by as much as 2 percentage points, effective tomorrow. Nomura estimated the move will unlock as much as 90 billion yuan (S$18 billion), while a nationwide reserve-ratio reduction would release about 550 billion yuan.

    If growth keeps slowing, "it will probably become a further nudge in the elbow towards more easing", Helen Qiao, chief Greater China economist at Morgan Stanley in Hong Kong, said on Bloomberg Television.