China outlook dims as export orders fall, PMI shows
Industry ministry warns against hopes of strong economic revival while sector holds off on investment and excess capacity casts long shadow
The mainland's economic recovery showed more signs of sputtering yesterday, with a private survey of manufacturers showing a sharp fall in export orders and the industry ministry warning against expectations of vigorous growth.
The HSBC flash manufacturing purchasing managers index (PMI) for China fell to a two-month low of 50.5 in April, compared with the final reading of 51.6 in March, HSBC and Markit said yesterday.
For the first time since December, the index for export orders fell below 50. A reading above 50 indicates expansion and one below, contraction.
The new PMI readings suggest "a stabilisation in growth in coming quarters, rather than a strong growth recovery", Barclays Capital economists said in a research note.
Meanwhile, Xiao Chunquan, a spokesman for the Ministry of Industry and Information Technology, warned of "great difficulties for the economy to maintain a stable growth".
He cited "a lack of effective demand, companies' reluctance to invest, serious problems with excess capacity, and a difficult operating environment for small and micro-sized companies".
Falling profitability had curbed companies' willingness to expand, Xiao said.
Nearly 21 per cent of the companies tracked by the government had suffered losses while those in profit were earning less than a few years ago, he said.
The weak PMI data and the official's downbeat comments triggered a stock market sell-off, with the Shanghai Stock Exchange Composite Index falling the most in three weeks.
The key index lost 2.6 per cent to close at 2,184.54 yesterday. The PMI data comes after mainland economic growth eased to 7.7 per cent year on year in the first quarter, from 7.9 per cent the previous quarter.
But Beijing still has not signalled any willingness to pursue drastic easing to ramp up the economy. The new leadership has stressed that it favours a growth path that reflects real demand rather than one driven by blind investments.
People's Bank of China governor Zhou Xiaochuan said on the weekend in Washington that the slower growth was "normal" as the country sacrificed expansion to make structural reforms.
But HSBC economist Qu Hongbin said Beijing would likely "respond strongly" by increasing efforts to boost domestic investment and consumption in the coming months.
Other economists, such as Nomura's Zhang Zhiwei, said growth would trend down for the rest of the year partly because the effectiveness of policy easing had been eroded by aggressive stimulus measures over the past five years.
The PMI survey's export order sub-index dropped to 48.6 from 50.5 in March.
The decline indicates that the surprisingly high growth in exports in the past few months - figures that analysts suspect were inflated to facilitate capital inflows - is gradually returning to normal.
A sub-index on production dropped to 51.1 this month from the final reading of 53 in March, while new orders fell to 51.7 from 53.3.