China HSBC flash PMI hits 7-mth low, fans growth fears

BEIJING: China's factory activity shrank for the first time in seven
months in May as new orders fell, a preliminary survey of purchasing
managers showed, adding to concerns that a recovery in the world's
second-largest economy is sputtering.
The flash HSBC Purchasing
Managers' Index (PMI) for May fell to 49.6, slipping under the 50-point
level demarcating expansion from contraction for the first since
October. The final HSBC PMI stood at 50.4 in April.
A sub-index
measuring overall new orders dropped to 49.5, the lowest reading since
September, suggesting China's domestic economy is not strong enough to
offset soft external demand.
"The cooling manufacturing
activities in May reflected slower domestic demand and ongoing external
headwinds," said Qu Hongbin, chief China economist at HSBC.
Asian
stock markets outside of Japan extended early losses after the report.
Oil, copper and rubber prices also fell, while the Australian dollar
skidded by a quarter of a U.S. cent.
Thursday's PMI revives
investors' concerns about the strength of China's economic recovery this
year, if one is seen at all. April economic data released earlier this
month had already underwhelmed markets and dented confidence.
It
is also likely to fuel a debate over whether policymakers should take
action to spur growth, though Chinese Premier Li Keqiang said earlier
this month that the nation has little room for fiscal stimulus.
The PMI survey showed new export orders hovered below the 50-point level in May, though the rate of decline slowed from April.
Still,
the weak showing implied foreign demand remained lethargic due to a
patchy U.S. recovery and Europe's nagging debt crisis, and echoes weak
export momentum seen in Taiwan and South Korea in May.
"A
sequential slowdown is likely in the middle of the second quarter,
casting downside risks to China's fragile growth recovery," Qu added.
China
posted lackluster data for industrial output and investment in April
after an unexpected economic slowdown in the first quarter, raising
fears of a feeble recovery in coming months.
Reflecting the cool
down in the vast factory sector, both indices for input and output
prices stayed muted in May to be near troughs seen in the third quarter
last year.
An employment sub-index pulled back slightly again in
May though local media reports suggest China's job situation is still
holding up this year.
LOWER GROWTH FORECASTS
The HSBC
flash PMI comes a week before the final reading and is the earliest
indicator of how the Chinese economy is faring each month.
Even
before Thursday's PMI report, China's surprisingly soft economic
performance this year has led some analysts to slash their 2013 growth
forecasts for the country towards 7.5 percent from initial predictions
closer to 8 percent.
Bank of America-Merrill
Lynch cut its forecast for China's annual gross domestic product growth
to 7.6 percent this year from 8.0 percent, and UBS downgraded its 2013
growth target to 7.7 percent from 8.0 percent.
Yet Beijing appears to be comfortable with an orderly cool down in the Chinese economy.
It
has set a 2013 economic growth target of 7.5 percent, a level it deems
adequate for job creation while providing room to restructure the
Chinese growth engine to wean it off its reliance on exports and heavy
investment. - Reuters