China factories bottoming out says survey
Beijing, May 2, 2012
China's manufacturing sector showed fresh signs of bottoming out in April, with export orders ticking up, but activity still contracted for a sixth consecutive month, according to a private sector survey.
"The seasonal rebound this year was much weaker than that in the past, suggesting growth momentum remains soft," Barclay's Capital analyst Yiping Huang said in a note to clients.
The HSBC China Purchasing Managers' Index, geared to smaller firms, improved to 49.3 in April from 48.3 in March, but remained below the threshold of 50 that divides expansion from contraction. It was slightly better than a preliminary estimate of 49.1 in late April.
The weaker reading from the HSBC index contrasted with strong official PMI numbers released on Tuesday, highlighting the continued divergence between China's larger, predominantly state-owned enterprises and smaller, private firms which are struggling to get credit.
Still, it showed that the rate of deterioration had slowed following a difficult first quarter when economic growth hit its slowest pace in nearly three years.
The government's official manufacturing PMI, largely indicative of bigger firms, rose to a 13-month high of 53.3 in April, thanks to stronger output and more new export orders. The March reading was 53.1.
"Anecdotal evidence provided by survey respondents suggested that reduced production reflected lower levels of incoming new business. There were also reports of a general deterioration in market conditions," Markit Economics, which compiled the HSBC index, wrote in its report.
The China Federation of Logistics and Purchasing, which compiles the official index, also urged caution on Tuesday. "Influenced by the change in demand, there is the possibility of a waning in future economic growth," one of the federation's analysts, Zhang Liqun, said.
Many analysts view the first quarter of this year as the bottom of the down cycle for the Chinese economy. Growth eased to a near three-year low of 8.1 percent in Q1 versus a year earlier, the fifth straight quarter of slowing growth. But they disagree over how quickly the economy will regain momentum.
With some softness persisting into the second quarter, and sluggish export markets, particularly in recession-hit Europe, few expect a sharp rebound for the rest of the year.
A Reuters poll in mid-April showed that economists expect growth to slowly tick up to 8.4 percent this year and 8.7 percent annual growth by the second quarter of next year.
As important as the rate of growth is the quality of growth. China racked up world-beating GDP growth rates in the aftermath of the global financial crisis but at the cost of over-reliance on loans and a tilt towards the state-owned sector that is still rippling through the economy.
The federation noted that while its sub-index for large firms was at 53.7 in April, or firmly in growth territory, its smaller firms sub-index was below the growth threshold at 49.1. Chinese manufacturers must also contend with the pressures of too much capacity and lacklustre demand.
"The longer the two indicators straddle either side of the 50-line, ... the less useful they become as indicators at all," wrote Alastair Thornton of IHS Global Insight in Beijing. Both surveys agreed that new export orders rose, albeit marginally, in April, while overall new orders fell, implying that domestic demand was relatively weak. - Reuters