China factory activity shrinks to 48.1 in April

New export orders contract, raise questions about if the economy is still losing momentum

Activity in China’s manufacturing sector contracted for a fourth consecutive month in April, a private survey showed on Monday, adding to questions about whether the world’s second-largest economy is still losing momentum.

The final reading of the HSBC/Markit purchasing managers’ index (PMI) for April came in at 48.1, lower than a preliminary reading of 48.3 but up slightly from an eight-month low of 48.0 in March. The HSBC/Markit PMI has been below the 50 level that separates growth from contraction since the start of 2014.

Output and new orders contracted in April, and new export orders slipped back into contraction after a recovery the previous month, the survey found.

"The latest data implied that domestic demand contracted at a slower pace, but remained sluggish. Meanwhile, both the new export orders and employment sub-indices contracted, and were revised down from the earlier flash readings," said Qu Hongbin, chief economist for China at HSBC.

"These indicate that the manufacturing sector, and the broader economy as a whole, continues to lose momentum," he added, saying the government needed to take bold action to make sure the economy regains its momentum.

Last week, China's official PMI rose to 50.4 from March's 50.3, indicating a slight expansion.

The official PMI is weighted more towards bigger and state-owned enterprises and tends to paint a rosier picture than the HSBC/Markit survey, which focuses more on smaller private firms.

SERVICES FARE BETTER

The services industry fared a little better, according to a separate official PMI released on Saturday, an encouraging sign in an economy that otherwise faces a cloudy outlook.

The PMI for the services industry rose to 54.8 in April from 54.5 in March, the National Bureau of Statistics said. The HSBC/Market services PMI is due on May 7.

China's growth engine has lost steam in the past year, squeezed by lacklustre demand for exports and the government's push to cut its own investment in a bid to reshape the economy.

To prove China has the mettle to enact painful reforms, Premier Li Keqiang has repeatedly said policy would not be loosened drastically to counter any short-term dips in activity.

Economic growth slowed to an 18-month low of 7.4 per cent in the first quarter of 2014. Economists in a Reuters poll expect growth of 7.3 per cent for 2014, compared with the government's target of about 7.5 per cent.