China factory gauge slumps to 11-month low as economy slows

Bloomberg

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A worker polishes painted vehicles in the paint shop of a plant in Wuhan, China. A worker polishes painted vehicles in the paint shop of a plant in Wuhan, China.

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A Chinese manufacturing gauge fell to an 11-month low in March, suggesting more stimulus may be needed to bolster factories in the world’s second-largest economy.
The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.2, missing the median estimate of 50.5 in a Bloomberg survey and down from February’s 50.7. Numbers below 50 indicate contraction.
The first reading of momentum in March may add to concerns of a deeper downturn after industrial output, investment and retail sales growth missed analysts’ estimates in January and February. Premier Li Keqiang this month pledged to take action if needed to shore up growth.
“Activity growth slowed in the first quarter,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “If the official PMI also slides, it will reinforce that further policy stimulus will be needed to hit the 7 percent GDP growth target.”
Chinese stocks slipped in Hong Kong, the one-year interest-rate swap declined, and the Australian dollar -- seen as a proxy for China’s economy due to the nation’s shipments of raw materials -- slipped after the news.
Readings of employment and new orders both worsened. The report, known as the Flash PMI, is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.
Policy action
Policy makers will take action if China’s growth, which the government targeted at about 7 percent this year, drifts toward the lower limit of its range and cuts into employment or wages, Premier Li said this month. Bloomberg’s gross domestic product tracker, which draws on measures such as electricity production, shows the pace weakened to 6.28 percent in February.
“With the data continuing to disappoint, the stimulus schedule may have to be stepped up,” Bloomberg economists Tom Orlik and Fielding Chen wrote in a note. “We expect the government to continue to roll out a combination of targeted pro-growth moves and universal cuts in interest rates and the reserve requirement ratio.”

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