Manufacturing activity in the world's second largest economy contracted for the third straight month in May reflecting weak global demand, a key survey shows. That raises the chances of more stimulus to boost growth.
The preliminary reading for the British banking giant HSBC's purchasing managers' index (PMI), released on Thursday, came in at 49.1 for May, slightly better than April's figure of 48.9.
Nevertheless, the figure marks the third consecutive month the index has been below the 50 point mark that separates contraction from growth.
The index tracks activity in China's factories and workshops and is regarded as a barometer of the health of the Asian economic giant.
Another key indicator, the HSBC Flash China Manufacturing Output Index, hit a 13-month low of 48.4 points in May, down from 50.0 in April, contracting at the strongest rate in 13 months and indicating that production had declined for the first time in 2015 so far.
Softer domestic and overseas demand and factory job cuts indicate that China's outsize manufacturing industry, which employs many millions of people, "may find it difficult to expand at least in the near term," says Annabel Fiddes, an economist at Markit, which conducted the survey. Companies are tempering production plans in line with weaker demand, she said.
However, the government has "plenty of scope" to impose further stimulus as deflationary pressures remained "relatively strong," Fiddes added.
The latest numbers raise expectations that policymakers in Beijing will roll out further measures to shore up slowing economic growth. China's gross domestic product expanded 7.4 percent last year, the slowest since 1990. Growth weakened further to 7.0 percent in the January-March period, the worst quarterly result in six years.
Growth to fall further?
China has already cut interest rates three times in six months and slashed the bank reserve requirement ratio in April as the government tries to meet its 7 percent growth target for the year.
This week the country's top economic planning agency also announced the approval of the construction of six railways expected to cost more than $40.8 billion (36.7 billion euros).
However, analysts at Nomura saw China's growth slowing to 6.6 percent year-on-year in the second quarter, before edging up to 6.8 percent in the second half of the year.
"To offset the headwinds from deep-seated structural challenges, we maintain our call of further monetary easing with two more 50-basis-point (bps) cuts to banks' reserve requirement ratio and two more 25 bp policy interest rates cuts over the rest of this year," they said.
"The most likely timing for the next easing could be July, in our opinion, as it will take time for policymakers to assess the impact of policy easing taken so far."
sri/hg (AP, AFP, dpa, Reuters)