Chinese manufacturing slows as export orders shrink

Latest PMI reading suggests world's second-largest economy still faces formidable global headwinds

Growth in China's vast factory sector dipped in April as new export orders shrank, a preliminary survey of factory managers showed today, suggesting the world's second-largest economy still faces formidable global headwinds into the second quarter.

The flash HSBC Purchasing Managers' Index for April fell to 50.5 in April from 51.6 in March but was still stronger than February's reading of 50.4. A sub-index measuring new export orders fell to 48.6 in April from 50.5 in March, reflecting weaker global demand as the US economic recovery remains fragile and the euro zone is mired in recession.

The figures follow an unexpected contraction in export orders in March to Taiwan, one of the region's biggest providers of tech gadgets, signalling that Asia's trade-reliant economies may be losing further momentum.

Exports from South Korea, another big supplier to the global tech industry, fell by 3.1 percent for the first 20 days of April from a year earlier. "New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak," said HSBC's China chief economist Qu Hongbin.


"Beijing is expected to respond strongly to sustain the economic recovery by increasing efforts to boost domestic investment and consumption in the coming months."

China's recovery in the second quarter after growth unexpectedly slowed to 7.7 per cent in the first quarter from 7.9 per cent in the previous three months. The slowdown, which came despite a credit boom, suggesting the cash sloshing around the economy is not having the desired effect of stoking growth and could instead exacerbate property and inflationary risks.

China's industry ministry noted in a separate statement today that companies had no strong desire to invest given weak demand and overcapacity, and it did not see any improvement in their difficulties operating in an uncertain and unstable global environment.

Still, the HSBC PMI has been above the 50-point level demarcating growth from contraction from the previous month since November 2012, though its failure to break above 53 indicates that the economic expansion it signals is only moderate.

Sub-indexes measuring both input and output prices fell in April, indicating overcapacity upstream and soft demand, according to the Flash PMI survey. An employment sub-index also dipped as factory activity cooled, although China's job market is holding up relatively well despite slower growth.