China's PMI at 6-month low as demand declines

BEIJING • Growth in China's manufacturing sector slowed faster than expected last month, an official survey showed yesterday, as producer price inflation cooled and policymakers' efforts to reduce financial risks in the economy weighed on demand.

The National Bureau of Statistics' official Purchasing Managers' Index (PMI) fell to a six-month low of 51.2 last month from a near five-year high of 51.8 in March.

Analysts polled by Reuters had predicted 51.6, for a ninth straight month above the 50-point mark that separates growth from contraction on a monthly basis. Demand fell across the board. The biggest decline was in the input price sub-index, which dropped to 51.8 from 59.3 in March.

Commerzbank economist Zhou Hao said recent sharp declines in iron ore and onshore steel prices point to some of the pressures faced by China's manufacturers.

He said in a note that this reflects a lack of improvement in underlying demand, although deleveraging efforts by the Chinese authorities have started to work.

Chinese steel and iron ore futures tumbled to multi-month lows early last month as sentiment turned bearish over the demand outlook and worries rose about a steel glut later this year.

The employment sub-index slipped to 49.2 from 50 in March. The raw materials inventories sub-index was unchanged at 48.3.

China's service sector clocked in at 54 last month, down slightly from the previous month's reading of 55.1, which had been the highest since May 2014.

The Chinese economy grew at a faster-than-expected 6.9 per cent during the first quarter, boosted by higher government infrastructure spending and the nation's gravity-defying property boom.

But growth is expected to slow as the authorities step up a battle to cool the property sector and as the central bank and the banking regulator take measures to contain financial risks.

The People's Bank of China is expected to guide short-term interest rates higher and step up its oversight of the financial sector, amid a crackdown on banks' shadow banking businesses.

Chinese leaders have pledged to shift the emphasis to addressing financial risks and asset bubbles, which analysts say could pose a threat to the world's second-largest economy if not managed properly.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 01, 2017, with the headline 'China's PMI at 6-month low as demand declines'. Print Edition | Subscribe