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Mar 22, 2012, 03.20 PM IST | Source: Reuters

China factory activity shrinks for 5th month

China's manufacturing sector activity shrank in March for a fifth successive month, with the overall rate of contraction accelerating and new orders sinking to a four-month low.

China factory activity shrinks for 5th month

China's manufacturing sector activity shrank in March for a fifth successive month, with the overall rate of contraction accelerating and new orders sinking to a four-month low, the HSBC flash purchasing managers index showed on Thursday.

The PMI, the earliest indicator of China's industrial activity, fell back from February's four month high, slipping to 48.1, within a whisker of the level that economists at HSBC consider a crucial level dividing decline from growth.

Slowing activity could mean a further relaxation of monetary policy to help underpin growth in the world's second biggest economy, but lingering inflation risks uncovered by the survey highlight the dilemma facing China's policymakers who are determined to keep a lid on prices.

The PMI reading, down from February's 49.6, is likely to reinforce the more bearish views on China's economic trajectory.

"Growth momentum could slow down further amid a combination of sluggish export new orders and softening domestic demand. This calls for further easing steps from the Beijing authorities," HSBC chief China economist, Qu Hongbin, said in a statement.

An index reading of 50 marks the line between expansion and contraction, according to the methodology of the survey compiled by UK-based data provider, Markit, but index sponsor HSBC reckons factors unique to the Chinese economy makes 48 especially significant.

The fall in the new orders sub-index to 46.2 had a particularly bearish effect on the overall index, as it is the single biggest of the five component items comprising the PMI.

All five elements signalled a contraction of activity.

READ MORE ON  HSBC PMI, China PMI

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