SHANGHAI (Reuters) - China's factory activity contracted at its fastest pace in a year in April, a private survey showed, suggesting that economic conditions are still deteriorating despite increasingly aggressive policy easing by the central bank.
The flash HSBC/Markit Purchasing Managers' Index (PMI) fell to 49.2 in April, below the 50-point level that separates growth in activity from a contraction on a monthly basis.
After a brief rebound in February, the index has now been back in negative territory for two consecutive months.
Economists polled by Reuters had forecast a reading of 49.6, equal to March's final reading.
The sharp decline in employment witnessed in March moderated somewhat and export orders rose for the first time in three months, but most of the news was bad.
New orders declined further to a one-year low of 49.2 from March's 49.8, pointing to softer domestic demand.
Meanwhile, declines in input and output prices, which had appeared to moderate in March, showed signs of accelerating again, signalling intensifying deflationary pressures which are a key worry for policymakers.
The weak PMI adds to a growing number of signs that China's economy is decelerating more rapidly than most analysts had expected, and perhaps some policymakers as well.
March money supply and industrial production year-on-year growth both came in at or near multi-year lows, with the latter posting its worst performance since the global financial crisis.
Economists have cautioned that some of the extreme weakness in March may be a reflection of the very late Lunar New Year celebrations in 2015, which distort year-on-year comparisons based on the western calendar. Many factories and offices shut for lengthy periods during the holidays.
But the continuing weakness in the April flash PMI adds to evidence that the world's second-largest economy is still slowing.
"Most of the activity and spending data for March came in below consensus," the Capital Economics China team wrote in a recent note. "We suspect this was partly the result of lingering disruption from the Chinese New Year. But downside risks to growth appear greater now than they did a month or two ago."
Particularly worrying from a policymaking perspective are renewed signs of rapidly falling prices. The Chinese government and central bank have closely studied lessons from neighbouring Japan, Asia's former dynamo whose policy mis-steps plunged it into decades of deflation from which it is still struggling to escape.
Weighed down by a cooling property market, industrial overcapacity and local debt, China's economy grew 7.4 per cent in 2014, its slowest expansion in 24 years. Economists expect growth to cool further to 7 per cent in 2015, even with additional stimulus measures.
The central bank has cut interest rates twice since November, on top of a raft of other monetary and fiscal measures announced over the past year, most recently a 100 basis point cut to banks' required reserve ratios on Sunday.
More such support measures are seen in coming months, with the central bank expected to embark on its boldest easing campaign since the depths of the global financial crisis.