Growth in China's manufacturing sector unexpectedly slowed in April as new export orders fell, raising fresh doubts about the strength of the economy after a disappointing first quarter. The official purchasing managers' index (PMI) fell to 50.6 in April from an 11-month high in March of 50.9. Analysts had expected the April PMI to be 51.0.
The pull back on the official PMI mirrored a similar decline in a preliminary HSBC PMI last week, suggesting China's exports engine faces headwinds from the euro zone recession and sluggish growth in the United States. China's new government has signalled it will step up infrastructure investment, which analysts said will provide support for the economy in the second quarter.
"Overall, my general feel is that China is growing but slower than people expected say a month ago," said Alvin Pontoh, economist at TDSecurities in Singapore. "But I don't think this is reason for alarm... this is probably what the new administration is looking for. Structurally, China cannot grow at 9 or 10 percent any more, so over the next few years, you'd reasonably expect growth to edge lower to say 7 percent or so". Market reaction to the PMI was muted as many countries in Asia and Europe are marking May 1 Labour Day holiday. China's markets are closed and will reopen on Thursday.
The official PMI figures showed a new orders sub-index fell to 51.7 in April from 52.3 in March, holding above 50 which separates expansion from contraction compared with a month earlier. However, the new export orders index fell to 48.6 from 50.9 in March, suggesting they were shrinking. The input price sub index fell to 40.1 in April, its lowest in at least four years.
HSBC's preliminary PMI for April fell to 50.5 from 51.6 in March as new export orders shrank. The final reading is scheduled to be published on Thursday. The latest PMI adds risks to market expectations that China's annual economic expansion will pick up to 8.0 percent in the April-June quarter after it slipped in January to March to 7.7 percent from 7.9 percent in the previous quarter. Zhiwei Zhang, a China economist at Nomura, said in a client note before the PMI figures that he expects growth to ease again in the second quarter to 7.5 percent.
Apart from expectations of more infrastructure investment, the central bank will hold rates steady throughout 2013, as it needs to tread a delicate balance between inflation and growth, a Reuters poll showed. Beijing is targeting 2013 growth of 7.5 percent, lower than the double digit levels of most of the past three decades as it tries to shift the economy to reduce reliance on exports and more towards consumption. Still, the recovery from seven-straight quarters of a slowdown through the third quarter of 2012 has been uneven so far. Growth picked up in the fourth quarter but then slipped in the first quarter of this year despite a credit boom in January through March.
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