BEIJING, March 25 The odds of Beijing
intervening to support the sluggish Chinese economy are
narrowing following a slew of data that points to the weakest
growth for China since the global financial crisis.
The economic pain may not be over, either, as some
economists forecast that the slowdown could deepen further in
the second quarter of the year.
It all adds up to increasing pressure on Beijing to provide
the economy with a lift if the government wants to meet its full
year growth target of around 7.5 percent.
"The government probably will have to provide some
supporting measures," said Wei Yao, China economist at Societe
Generale in Hong Kong. "I think the slowdown is not over yet and
our expectation is that the deceleration will continue into Q2,"
A preliminary March factory survey released on Monday showed
the manufacturing sector shrinking for the third straight month.
It followed weaker-than-expected industrial output figures for
January and February and a shocking fall in exports.
The factory data weighed on global markets as investors
worried about the impact of a slowdown in China on the world
economy, although Chinese shares listed in Hong Kong rallied on
hopes for stimulus measures from Beijing.
As the first data covering March, the flash Markit/HSBC
purchasing managers' index (PMI) provided the first strong
indication on the health of the economy this year. Data for
January and February was distorted by the Lunar New Year
holidays, economists say.
The PMI fell to an eight-month low of 48.1 in March from
February's final reading of 48.5. The index has been below 50
since January, indicating the sector is contracting.
Factory output and new orders both weakened but new export
orders grew for the first time in four months, the survey
showed, suggesting the slowdown has been driven primarily by
weak domestic demand.
"Usually, for the month of March, the PMI will rebound,
because after Chinese New Year, there should be some activity
coming back, but this PMI is disappointing," said Societe
She expects economic growth to ease to 7.2 percent in the
first quarter of this year from the fourth quarter of 2013 and
then to cool further in the second quarter to 6.9 percent.
Nomura expects growth to slow to 7.3 percent in the first
quarter and then to 7.1 percent in the second, while Barclays
sees it slipping from 7.3 percent to 7.2 percent.
The predictions would all represent the lowest growth since
the first quarter of 2009 when it was 6.6 percent.
Analysts said any policy measures to support the economy
would be modest and certainly not on the scale of global
financial crisis, when a torrent of lending led to an
unprecedented buildup in debt.
"We think the government will roll out policies to support
the economy," said Sun Wencun, an economist at Citic Securities
Hongbin Qu, chief China economist at HSBC, suggested those
measures could include "lowering entry barriers for private
investment, targeted spending on subways, air-cleaning and
public housing, and guiding lending rates lower."
Economist Zhiwei Zhang of Nomura in Hong Kong reckoned the
central bank would also play its part, by reducing banks'
compulsory reserves - currently 20 percent for big banks. This
would free up funds for banks to lend.
Earlier this month, sources told Reuters the central bank
was prepared to loosen monetary policy in order to keep the
economy growing at 7.5 percent. Last year,
China's economy grew 7.7 percent, the same pace as in 2012.
Premier Li Keqiang last week said China would speed up
investment and construction plans to ensure domestic demand
expands at a stable rate - an indication authorities are
considering practical measures to support the economy.
Not all analysts are convinced though that Beijing will step
in to support the economy since there are no signs that
unemployment is a problem.
"We don't think the latest data warrants a policy response,
just yet, at least," said Julian Evans-Pritchard, Asia Economist
at Capital Economics in Singapore.
EMPLOYMENT IS KEY
After three decades of double-digit growth, Beijing has said
repeatedly it is willing to accept a lower rate of expansion
while it tries to reduce the economy's reliance on investment
and exports. It wants consumption and services to play a bigger
Earlier this month in a major speech to parliament, Li said
Beijing had the means to ensure growth would be "reasonable"
this year, which he suggested would be around 7.5 percent.
Analysts said Beijing had the policy flexibility to ensure
that the target is met but they suggested the real concern for
policymakers would be if employment started to fall sharply.
Li says growth needs to be 7.2 percent to create 10 million
new jobs in 2014. About 13 million new jobs were created last
There are few reliable indicators on China's jobs market but
the HSBC manufacturing PMI suggests employment has been
shrinking for five straight months.
Finance Minister Lou Jiwei has said a healthy labour market
was more important than reaching the government's 2014 growth
target of about 7.5 percent.
Something close to 7.5 percent "should be acceptable as long
as there is no significant risk to the labour market," said Sun
Junwei, HSBC China economist in Beijing.
Yao of Societe Generale said the 2014 growth target of 7.5
percent is too ambitious - but failing to reach it would be
"It is a good thing if they miss it," said Yao, whose
full-year growth forecast is 7.1 percent. "They can make the
case that it is a necessary sacrifice."
(Reporting by Adam Rose, Aileen Wang and Xiaoyi Shao; Editing
by Neil Fullick)