Daily Management Review

China's Manufacturing And Service Activity Declines In April, Reducing The Pace Of The Economy


China's Manufacturing And Service Activity Declines In April, Reducing The Pace Of The Economy
Growth in China's manufacturing and services sectors slowed in April, according to government surveys released on Tuesday, indicating a loss of momentum for the world's second-largest economy at the start of the second quarter.
Signs of decreasing activity following large increases in March show irregular demand and the hurdles that policymakers face, even though strong first-quarter GDP data has decreased the pressure to scale up stimulus measures.
The National Bureau of Statistics (NBS) manufacturing purchasing managers' index (PMI) fell to 50.4 in April from 50.8 in March, over the 50-point threshold that separates expansion from contraction and marginally ahead of a consensus prediction of 50.3 in a Reuters poll.
New export orders increased at a considerably slower rate, whereas employment continued to decline, according to data from the NBS.
The services sub-index of the NBS non-manufacturing survey fell considerably to 50.3 in April, the worst rate since January, from 52.4 in March.
"Indicators of business activity in the catering, capital market services and property industries were in contraction," the National Bureau of Statistics (NBS) said in a statement.
Another private Caixin factory survey, issued on Tuesday, revealed that manufacturing activity increased faster as new export orders increased.
The Caixin poll is seen to be more slanted towards smaller, export-oriented businesses than the considerably larger official PMI.
U.S. equities closed higher on Monday, with Tesla and Apple leading the way, as investors anticipated the Federal Reserve's policy meeting later this week and its interest rate forecast.
"Both the manufacturing and services PMI indexes are near the line of 50, reflecting that the current momentum of economic expansion is mild," said Zhou Maohua, a macroeconomic researcher at China Everbright Bank.
A separate business survey conducted by the China Beige Book consultancy found that every key indicator, from revenue and earnings to pricing and hiring, slowed in April, as corporate borrowing fell despite lowering lending rates.
"April's results say China's 2024 growth prospects are already losing altitude," it said in a news statement.
China said on Tuesday that it will increase economic assistance using policy instruments such as banks' reserve requirement ratio (RRR) and interest rates, according to the Politburo, the governing Communist Party's highest decision-making body, as reported by official media Xinhua.
Another long-awaited gathering, known as the third plenum, will take place in July, with the goal of strengthening reforms and boosting China's modernization, according to Xinhua, quoting the Politburo meeting.
With the US Federal Reserve and other Western countries in no haste to lower interest rates, China may face a prolonged period of low foreign demand. To make matters worse, Beijing is still dealing with trade hurdles, as the United States accuses China of exporting industrial overcapacity.
This year, officials emphasised the importance of advanced-sector innovation in driving economic development.
However, economists say the country's immediate problem is a prolonged housing downturn and increasing local government debt, which have harmed household and investor confidence.
Several rounds of support measures targeted at revitalising the real estate industry have failed to spark a rebound, which is one of the primary reasons why China experts remain doubtful of a near-term full-fledged economic comeback.
Nomura analysts said this week that new house sales and construction indicators such as cement sales continued to fall dramatically in April.
Krishna Srinivasan, IMF Asia-Pacific Director, said on Tuesday that scaling back China's industrial policies will assist to minimise resource misallocation and excess capacity. He believes that instead of focusing on supply-side strategies, the aim should be to stimulate domestic demand.
While stronger-than-expected first-quarter economic growth offered a much-needed boost for the rest of the year, weakness in March month statistics like as retail sales, industrial earnings, and property investment has investors concerned about China's capacity to spark a broader, durable recovery in demand.
China has set a GDP growth target of roughly 5.0% for 2024, which observers regard as ambitious without further stimulus.
According to Julian Evans-Pritchard, Capital Economics' head of China economics, the current cyclical rebound will continue in the short term, owing mostly to projected fiscal assistance.
"But there are plenty of downside risks, including the threat of foreign trade barriers, a deeper downturn in property construction and a pullback in off-budget local government spending on infrastructure."