Chinese manufacturing dropped to lowest level in 11 months

Chinese manufacturing dropped to its lowest level in nearly a year as new orders decline, according to HSBC’s preliminary manufacturing index.

The lackluster manufacturing results has raised further concern about the outlook of the Chinese economy.

The flash HSBC/Markit Purchasing Managers’ Index (PMI) dropped to 49.2 in March from 50.7 the previous month. A result below 50 indicates contraction on a monthly basis, while a PMI over 50 means that manufacturing output is growing.

The PMI figure is worse than what most analysts had expected. A poll by Reuters revealed that economists, on average, expected Chinese PMI to be 50.6 in March.

Slight deterioration in Chinese manufacturing 

The report said that the numbers signal a “slight deterioration” in Chinese manufacturing.

Adding that a “renewed fall in total new business contributed to weaker expansion of output” while companies trimmed staff.”

Economists at CICC said in a research note:

“The weaker PMI data could increase pressure for policy loosening,”

Manufacturers in China are facing weaker domestic demand as well as deflationary risks

In addition, the employment sub-index contracted for a 17th consecutive month, falling to the lowest level since the global financial crisis.

The survey suggests that manufacturers faced considerable challenges from weaker domestic demand and deflationary risks.

Annabel Fiddes, an economist at Markit, commented on the figures:

“A renewed fall in total new business contributed to a weaker expansion of output, while companies continued to trim their workforce numbers,”

“Manufacturing companies continued to benefit from falling input costs, stemming from the recent global oil price decline. 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.”

Chinese economic growth has slowed down

The Chinese economy expanded as its slowest pace in nearly a quarter century last year (7.4 percent). Most economists expect growth will slow down even more this year and in 2017.

What is the HSBC Flash China Manufacturing PMI?

According to Markit:

“The HSBC Flash China Manufacturing Purchasing Managers’ Index™ (PMI™) is published on a monthly basis ahead of final PMI data, making the HSBC PMI the earliest available indicator of manufacturing sector operating conditions in China.”

“The estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data. March final PMI data will be released on 1 April 2015.”

ReferenceHSBC Flash China Manufacturing PMI™ Press Release – Compiled by Markit