China HSBC manufacturing PMI slows in April

China's first economic indicator for the second quarter undershot expectations on Tuesday, showing that the world's second-biggest economy is still facing an uphill battle in its recovery efforts. HSBC's April flash PMI fell to a two-month low of 50.5 in April from 51.6 in March, sorely missing expectations of a reading of 51.5.

Missing forecasts, China's vast factory sector is facing headwinds stronger than expected. The HSBC flash China Manufacturing Purchasing Managers Index fell to 50.5 in April, compared with a final reading of 51.6 in March, barely in expansionary territory.

Weakness is particularly apparent in exports. The sub-index measuring new export orders fell to 48.6 in April from 50.5 in March.

Luo Jun, CEO of Asian Manufacturing Association, says external demand remains dire. Luo said, "Traditional markets including the US and EU are suffering from more troubles in their economies. Although the situation stabilized pretty much last year, there are still fluctuations this year. China's vast export-oriented economy is still subject to the impact."

Weaker overall demand has also started to weigh on employment in the manufacturing sector, with the employment sub-index also in contraction territory. Industry insiders note that softness in the manufacturing sector is a sign of continued overcapacity, citing the country's decline in producer prices. And restructuring efforts are needed to upgrade China's manufacturing sector.

As Luo Jun said, "Many Chinese manufacturing companies are still subject to the old growth model during the industrialization process. They are becoming increasingly subject to the restraint of energy and resources, among others. They have to use new technologies to upgrade their production."

The government is expected to step up infrastructure investments to cushion the economy against global headwinds. But aggressive easing is not in sight as the government plans to put growth on a more sustainable footing in the long-term.