China factory index barely changed, HSBC gauge dips for 3rd month in latest slowdown signs

HONG KONG – An official measure of Chinese factory activity barely budged last month while a private survey found manufacturing deteriorated in the first quarter, adding to signs the world’s No. 2 economy is slowing.

The purchasing managers’ index by the China Federation of Logistics & Purchasing ticked up to 50.3 in March from 50.2 in February. The index uses a 100-point scale on which numbers above 50 indicate expansion.

Economists said the increase should have been a lot stronger because factories typically return to full speed in March after shutting for the extended Lunar New Year holiday, which begins in either January or February each year.

“Adjusted for seasonal patterns, the March reading implies a significant further slowdown in manufacturing,” said Louis Kujis, chief China economist at Royal Bank of Scotland.

China’s economy has slowed after a decade of red-hot expansion as the country’s leaders try to reduce reliance on trade and investment and encourage growth based on domestic spending. The economy expanded 7.7 per cent last year, the slowest expansion in two decades.

The federation said the increase in the PMI in March was a sign that China’s manufacturing was “stabilizing for the better.”

Separately, HSBC’s manufacturing index fell to 48.0 from 48.5, slightly worse than the 48.1 in a preliminary report and its third consecutive monthly drop.

Output shrank at a faster rate and factories cut staff and purchasing.

Total new orders also fell faster, indicating softening domestic conditions, although new export orders rose for the first time in four months on stronger demand from Europe and the United States.

The report implies that first quarter economic growth likely fell below the 7.5 per cent rate that China’s leaders have targeted for the full year, said HSBC’s chief China economist, Qu Hongbin.