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Weak Chinese data spooks markets

Publication Date : 06-05-2014


A string of Chinese economic data that missed market estimates rattled stocks in the region yesterday, as concerns grew about a slowdown in the world's No. 2 economy.

China's manufacturing contracted for a fourth month running last month, according to a private survey, while holiday home sales plunged.

Last month's purchasing managers' index (PMI) compiled by HSBC/Markit came in at a final 48.1 compared with 48 the previous month. This was below the 48.4 median estimate analysts surveyed by Bloomberg News had expected. Numbers below 50 indicate contraction.

New home sales also fell 47 per cent over the three-day Labour Day holiday to the lowest level in four years in 54 cities, property firm Centaline Group said in a report dated last Saturday.

The weak data caused Hong Kong shares to close 1.28 per cent lower yesterday. In China, the benchmark Shanghai Composite Index reversed early losses to end flat.

Economists say weakening growth might be here to stay after Beijing introduced tough reforms, such as choking off easy credit to rebalance its export and investment-heavy economy. But this has also led to fears that China might be hit with a hard economic landing.

Economists forecast China's gross domestic product to grow 7.3 per cent this year, the weakest pace since 1990, compared with an official target of about 7.5 per cent.

But this growth is likely still within the range of what the government can stomach, said Chen Long, an economist with research firm Gavekal Dragonomics. "The government has sent a clear message that it is committed to market reforms and will not roll out a massive stimulus package," he added.

"Reaching its employment target of creating 10 million urban jobs is more important and China can do that with a growth of 6 per cent to 6.5 per cent."

Julian Evans-Pritchard, an economist with Capital Economics, also noted that while April's manufacturing PMI is a sign that the sector's conditions remain challenging, it is the first improvement in the index since October. This suggests that downward pressure on the economy has eased somewhat.

Still, as the growth momentum slows, some economists argue that the Chinese economy needs a greater boost, beyond the limited moves taken by Beijing recently to boost trade and e-commerce.

"While these steps will help to offset some of the near-term drags, we think more measures are required for the economy to gain a more sustainable momentum," HSBC's economist Julia Wang said in a note.


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