Manufacturing conditions worsen as demand softens

A worker connects electric cables at an offshore oil engineering company in Qingdao, Shandong province. The Asian Development Bank said China's GDP growth may slow to 7.2 percent this year from 7.4 percent in 2014.(Photo: Yu Fangping/China Daily)

Private survey finds producers paring jobs, cutting prices to retain orders from customers

Manufacturing activity has deteriorated to the lowest point in almost one year after an uptick in February, prompting market speculation that the government will inject further liquidity into the economy as soon as next month.

The flash manufacturing Purchasing Managers Index for March eased back into contraction, sliding to 49.2 from 50.7 in February, HSBC Holdings Plc and data service provider Markit Ltd said on Tuesday. That is the lowest level since April 2014.

The manufacturing output index dropped to a two-month low of 50.8 from 51.7 in February.

"A renewed fall in total new business contributed to a weaker expansion of output, while companies continued to trim their workforce numbers," said Annabel Fiddes, an economist at Markit.

"Manufacturing companies continued to benefit from falling input costs, stemming from the recent global oil price decline," she said. "However, relatively muted client demand has led firms to pass on savings in a bid to boost new work and cut their selling prices at a similarly sharp rate."

On Tuesday, the Manila-based Asian Development Bank said that China's GDP growth this year may slow to 7.2 percent from 7.4 percent in 2014, as the government tries to steer the economy toward a more sustainable expansion path and reduce reliance on trade and investment.

Growth may further decline to 7 percent in 2016, the ADB said.

But Asia's largest economy is likely to retain its position as the biggest contributor to world GDP growth this year and next. China will account for 32 percent of global economic growth this year, compared with 16 percent for India, the bank said.

Growth in India is likely to accelerate to 7.8 percent this year from last year's 7.4 percent, the ADB said, noting regulatory changes aimed at removing "structural bottlenecks". It said India's growth should rise further to 8.2 percent next year.

"China's economy can continue to deliver solid growth as long as the government makes steady progress on its reform agenda, which can elevate productivity," said ADB Chief Economist Shang-Jin Wei.

"Monetary policy in China will continue to strike a balance between limiting credit expansion in the financial and property sectors, while accommodating the need for credit support to small and medium-sized businesses," the ADB said.

Zhu Haibin, chief economist in China at JPMorgan Chase & Co, said on Tuesday that another cut in banks' reserve requirement ratio, of 50 basis points, may come next month.

He noted that macroeconomic developments remain "on the soft side" and the authorities may be concerned about relatively tight liquidity amid continued capital outflows.

"The government's recent growth-supporting policies, especially the central bank's first (interest) rate cut in November, are expected to have a lagged impact on growth momentum starting from the second quarter," said Zhu.

"Given the situation, monetary easing, including a reserve ratio cut, is fully justified to stabilize economic growth and bring down borrowing costs in the real economy," he said.