China's manufacturing PMI (purchasing managers' index) surveys issued Tuesday show sluggish growth in March with the official survey rising slightly to 50.3 in March, compared with 50.2 in February - - 50 is the no-change level - - while the HSBC bank survey shows the sharpest fall of output since November 2011 with the index dropping to 48.0 from 48.5.
The official survey is of big state enterprises while the HSBC survey is of smaller private firms.
HSBC said Chinese manufacturers reported lower intakes of new work in March, extending the current sequence of reduction to two months. Reports from panellists suggested that deteriorating market conditions weighed on client demand in the latest survey period. Data suggested that lower volumes of new work were largely a result of softer domestic demand, as new export orders increased for the first time in four months during March. Stronger client demand in Europe and the US was cited by a number of survey respondents.
Manufacturers cut their production levels for the second successive month in March, with panellists largely linking the fall to fewer new orders. Moreover, the rate of contraction quickened from February to the strongest since November 2011.
Chinese goods producers reduced their purchasing activity in March. Furthermore, the rate at which input buying decreased was the strongest since September 2012. In contrast, stocks of finished goods rose in March due to fewer sales.
Lower intakes of new work enabled firms to reduce their level of outstanding business in March. That said, the rate of backlog depletion was only slight. Meanwhile, staffing levels declined for the fifth month running, though the rate of job shedding eased to a marginal pace.
Weaker demand for inputs led to a slight improvement in vendor performance during March. Panellists reported that suppliers cut their charges in response to reduced demand, leading to the sharpest reduction in cost burdens since August 2012. Firms passed on lower production costs to clients and cut their selling prices at a similarly sharp pace.
Hongbin Qu, Chief Economist, China & co-head of Asian Economic Research at HSBC said: "The final reading of the HSBC China Manufacturing PMI in March confirmed the weakness of domestic demand conditions. This implies that 1Q GDP growth is likely to have fallen below the annual growth target of 7.5%. We expect Beijing to fine-tune policy sooner rather than later to stabilise growth."
The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 420 manufacturing companies.
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