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Earlier this month, economists cut their projections for China's growth after industrial production trailed estimates. Photo: AFP

Drop in HSBC flash PMI confirms weakness in Chinese economy

Mainland manufacturing contracts in survey, highlighting hurdles to hitting growth targets

BLOOM

An index of mainland manufacturing activity unexpectedly fell, underscoring the risk that leaders will need to add stimulus to meet this year's goal for economic growth.

The flash purchasing manager's index from HSBC and Markit Economics dropped to 48.1 this month, the companies said yesterday.

The preliminary reading compares with the 48.7 median estimate of 22 analysts surveyed and last month's final 48.5 figure. Numbers above 50 signal expansion.

The Australian dollar fell and copper extended losses as the report suggested Premier Li Keqiang will have a tougher time meeting a growth target of about 7.5 per cent this year amid efforts to curb pollution and financial risks from surging debt.

We expect Beijing to launch a series of policy measures to stabilise growth
QU HONGBIN, ECONOMIST, HSBC

The State Council said last week that China would speed up construction projects and other measures to support the world's second-largest economy.

"Weakness is broadly based, with domestic demand softening further," Qu Hongbin, the Hong Kong-based chief China economist at HSBC, said in a statement.

"We expect Beijing to launch a series of policy measures to stabilise growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air cleaning and public housing, and guiding lending rates lower."

China's benchmark Shanghai Composite Index fluctuated after the report and closed up 0.91 per cent. The Australian dollar fell 0.2 per cent to 90.7 US cents.

The flash PMI is typically based on 85 per cent to 90 per cent of responses to surveys sent to purchasing managers at manufacturers. The final reading will be released on April 1.

The PMIs have increasingly become a barometer of China's economy for global investors. One advantage is that they are among the first gauges for each month, as government reports on trade, industrial output and retail sales typically are released several weeks later.

Yesterday's report gives some indication of how much a slowdown in the first two months of the year extended into March.

Earlier this month, economists at companies including JP Morgan Chase and Goldman Sachs cut their projections for China's growth after fixed-asset investment rose at the slowest January-February pace since 2001, industrial production trailed estimates and exports fell by the most since 2009.

This article appeared in the South China Morning Post print edition as: Drop in flash PMI signals Chinese economic weakness
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