The slowdown in China's manufacturing sector, as the latest purchasing managers' survey showed, adds to evidence that the economy remains weak after the slowdown in first quarter, Capital Economics Chief Asia Economist Mark Williams said Wednesday.
According to Williams, April's headline manufacturing purchasing managers' index (PMI), which remained in the expansionary territory despite declining, probably overstates the current strength as it failed to account adequately for a seasonal pick-up in April or the difficulties being faced by small firms.
The economist noted that the HSBC/Markit PMI, which gives a more accurate picture regarding the contribution of smaller firms to overall industrial output, is more representative of Chinese manufacturing than the official data. This matters because, the latest survey showed that small firms are finding conditions much tougher than the rest.
Data released by the China Federation of Logistics and Purchasing (CFLP) today showed that the PMI for the Chinese manufacturing sector dropped to 50.6 in April from 50.9 in March.
Capital Economics noted that the marked deceleration in production growth gives enough room for concern as April is normally one of the strongest months for output, and signals that production is set to weaken in coming months. New orders fell sharply during the month, reflecting mainly the slump in export orders.
With the revised bank lending rules restricting policymakers from further boosting the the already-high pace of credit growth, the Chinese economy is set to grow at a slower pace over the next year than anticipated and, in all likelihood, in the years beyond, the firm said.
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