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China Factory Sector Shrinks For Fifth Month

China Factory Sector Shrinks For Fifth Month

China's manufacturing sector shrank for a fifth consecutive month in March, as output suffered a pullback due to weakening domestic demand in the world's second-largest economy, a survey by Markit Economics revealed Thursday.

The headline flash HSBC/Markit manufacturing purchasing managers' index fell to a four-month low of 48.1 in March from 49.6 in February.

A PMI reading below 50 indicates contraction of the sector, while a reading above 50 suggests expansion. The manufacturing output index fell to 47.9 from 50.2 in February.

Preliminary findings of the survey showed that new orders contracted at a faster pace this month, while new export orders continued to decline, albeit at a slower pace.

"Weakening domestic demand continued to weigh on growth, as indicated by a slowdown in new orders which came in at a four-month low," HSBC chief economist Hongbin Qu said. "External demand remained in contraction territory, but the decline was at a slower pace, implying that there are no improvements in the demand outlook."

The survey report said that input price inflation faced by manufacturers remained unchanged in March, while output prices declined at a slower pace.

Employment fell to a new low since March 2009. This suggests that slowing manufacturing production was hindering enterprises' hiring desire, Hongbin noted. Also, "the soft-patch in manufacturing was in line with the recent downside surprise in industrial production growth," the economist added.

He was of the view that growth momentum could slow down further amid a combination of sluggish export new orders and softening domestic demand and said this calls for further easing steps from the Beijing authority.

In its latest policy easing move, the People's Bank of China last month cut the reserve requirement rate for all commercial banks by 50 basis points for the second time in three months to boost lending amid sluggish economic growth.

China targets 7.5 percent economic growth this year, lower than the previous target of 8 percent. The economy expanded 9.2 percent in 2011 and 10.4 percent in 2010.

by RTT Staff Writer

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