Latest China manufacturing data augurs more stimulus

Asia Unhedged finds no surprises in China’s latest manufacturing data. Activity in Chinese factories slowed sharply in April, according to HSBC’s April Purchasing Managers’ Index (PMI).

The PMI slipped to 48.9 from 49.6 in March. This was worse than a preliminary reading of 49.2 issued in late April and below a break-even point of 50, putting the reading squarely on the contraction side of the fence. It was the sharpest contraction in a year.

China’s economy is indeed slowing. But the good news is this makes further government stimulus measures more likely. The expectation underpins upbeat sentiment in Chinese stocks and various industries.

“The PMI reading indicates that more stimulus measures may be required to ensure the economy doesn’t slow from the 7% annual growth rate seen in Q1,” Markit economist Annabel Fiddes said in a statement.

HSBC’s PMI data follows a positive report on Chinese manufacturing. On Friday, the government’s official Purchasing Managers’ Index showed that China’s manufacturing sector continued to expand in April. It weighed in at 50.1 in April. Any number above 50 signals expansion. The production sub-index posted at 52.6, the highest monthly reading since November last year. Who to believe?

The People’s Bank of China has already cut interest rates twice since November and relaxed lender reserve requirements earlier this month. More pump-priming appears to be in the works. Stay tuned.

 

 

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