Chinese manufacturing contracting - PMI

Asian markets fall amid fears GDP growth to stall

Chinese Changan cars are parked inside a factory in Chongqing. Data released today show China’s manufacturing is contracting in May for the first time in seven months. Photograph: Reuters.
Chinese Changan cars are parked inside a factory in Chongqing. Data released today show China’s manufacturing is contracting in May for the first time in seven months. Photograph: Reuters.

Chinese manufacturing is contracting in May for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter.

The preliminary reading of 49.6 for a Purchasing Managers’ Index released today by HSBC Holdings and Markit Economics compares with a final 50.4 for April. A reading above 50 indicates expansion.

Asian stocks slumped after the data, which may test the new government’s commitment to tolerate slower growth after premier Li Keqiang last week signaled reluctance to add stimulus.

Investors soured on China’s outlook in a Bloomberg global poll this month, with the share of respondents who see the economy deteriorating doubling from January.

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“The slowdown is really bad,” said Ken Peng, a BNP Paribas SA economist based in Beijing. “It’s a big probability now that China’s GDP growth rate in the second quarter will be lower than in the first quarter,” he said, referring to gross domestic product.

The MSCI Asia Pacific Index of stocks fell 3.6 per cent in Tokyo, and headed for the biggest loss since September 2011, as Japan’s Topix Index closed down 6.9 per cent, the most since the aftermath of the Fukushima disaster in March 2011.

The benchmark Shanghai Composite Index of stocks fell 1.2 per cent at the close, the largest drop in a month.

China’s growth unexpectedly slowed to 7.7 per cent in the first quarter while remaining above the government’s full-year target of 7.5 per cent.

Data earlier this month on fixed-asset investment and factory production missed forecasts and gauges of manufacturing and service industries declined.

The economy expanded 7.8 per cent in 2012, the slowest pace in 13 years. HSBC will release the final PMI reading on June 3rd.

The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own PMI survey, with a bigger sample size, on June 1st.

The official PMI in April was 50.6, down from 50.9 in March. The preliminary, or flash PMI is based on about 85 per cent to 90 per cent of responses from more than 420 manufacturers.

Today’s data reflect “slower domestic demand and ongoing external headwinds,” Qu Hongbin, HSBC’s Hong Kong-based chief China economist, said in a statement.

Bloomberg