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China factory activity falters for a fifth straight month

03-23-2012 08:06 BJT

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HSBC’s Flash PMI shows that China’s factory activity slowed for a fifth straight month in March. What’s more - the contraction deepened, and new orders tumbled to a 4-month low.

Experts are expressing worries that the pessimism could spread to the overall economy. They are also expecting more policy support from the country’s central bank.

HSBC’s flash purchasing managers index fell to 48.1, weakening from last month’s 49.6, and dropping further below the 50 level that demarcates expansion and contraction.

More worryingly, input prices, the cost of raw materials, was the only component that stayed constant, pointing to continuing inflation risks.

The employment component weakened, suggesting lower manufacturing activity was starting to affect hiring.

Despite the lingering inflation risks, SEB Chief Economist Robert Bergqvist says Beijing should act to prevent the poor sentiment from spreading to the wider economy.

Robert Bergqvist said: "It’s quite important that we are not going to see too much of a drop in the PMI because that could be a negative factor for the stock market of course, and then it could have a kind of spillover effect on consumer confidence, business confidence, and then it could be kind of drag on the global economy, and of course also on the Asian economy."

Copper prices and the Australian and New Zealand currencies fell Thursday, and many Asian stock markets weakened before paring losses.

The PMI data reinforces more bearish views on China’s economic trajectory, but Bergqvist does not see stimulus measures ahead.

Robert Bergqvist said: "What you see right now, that is a kind of short term slowdown in the Chinese economy, so it’s the responsibility for the Chinese central bank to provide more support. So we should expect more support, lower cash requirements from the central bank and maybe also rate cuts from the central bank going forward."

China’s central bank has relaxed bank reserve ratios twice since November, but has refrained from cutting interest rates.

 

Editor:Zhang Rui |Source: CNTV.CN

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