Paul Panckhurst Beijing

China’s manufacturing contracted for a fourth month in April, according to a private survey that missed estimates and sent stocks in the region lower on concern the economy’s slowdown is deepening.

A purchasing managers’ index (PMI) was at 48.1, HSBC and Markit Economics said yesterday. That compared with a 48.4 median estimate from analysts, a preliminary reading of 48.3 and 48 in March. Numbers below 50 indicate contraction.

Hong Kong stocks extended declines on the report, which suggests Communist Party leaders have to do more to set a floor under economic growth after property construction plunged last quarter and expansion cooled. Gross domestic product is projected to increase 7.3 percent this year as the government reins in credit, according to a Bloomberg survey, compared with an official target of about 7.5 percent.

“There is no substantial improvement in momentum,” said Ding Shuang, the senior China economist at Citigroup. The property market slowdown was having “certainly some impact” on manufacturing.

The Hang Seng index fell 1.3 percent by the close and the Hang Seng China Enterprises index of mainland shares, also known as the H-share index, closed 0.6 percent lower.

The State Council has outlined a package of spending on railways and housing and tax relief to support growth and pledged extra efforts to aid exporters. The central bank lowered the reserve requirement ratio for some rural banks by as much as 2 percentage points.

The country last lowered the reserve ratio for large banks in May 2012, to 20 percent. The ratio was “relatively high” and remained a major tool of the nation’s monetary policy, People’s Bank of China officials Sheng Songcheng and Zhang Xuan wrote in an article dated May 4 in China Finance, a central bank publication.

China Railway planned to increase this year’s investment to more than 800 billion yuan (R1.4 trillion) from a previously announced 720 billion yuan, financial news provider Caixin reported on its website last week. The amount had been raised twice this year from an original 630 billion yuan to 700 billion yuan and then to 720 billion yuan, it said.

Finance Minister Lou Jiwei reiterated that China would not have short-term, large-scale stimulus, according to a statement yesterday on the ministry’s website citing comments made on Saturday at a meeting in Astana, Kazakhstan.

“Beijing has introduced more reform measures which could support growth by inducing more private-sector investment,” Qu Hongbin, the chief China economist at HSBC, said. “We think bolder actions will be required to ensure the economy regains its momentum.”

A reserve ratio cut was possible, especially if China saw sustained capital outflows, said Yao Wei, a China economist at Société Générale in Hong Kong. “The economy is still actually suffering from relatively weak growth momentum. We think the economy will remain weak. The deceleration probably is not over yet.”

Yesterday’s private PMI number compared with a reading of 50.4 in a manufacturing index released on May 1 by the National Bureau of Statistics and the China Federation of Logistics and Purchasing.

Thirty of 31 provinces and municipalities failed to meet their growth targets in the first quarter even after scaling back their ambitions as the government instructs officials to focus on reining in debt and curbing pollution. – Bloomberg