* Official PMI at 50.3 in March vs 50.2 in Feb
* HSBC/Markit PMI at 48.0 in March vs 48.5 in Feb
* Markets expect govt to respond to signs of slowing growth
(Updates with HSBC/Markit PMI, add comments and analysis)
By Kevin Yao and Adam Rose
BEIJING, April 1 Persistent weakness in China's
manufacturing sector reinforced fears of a sharper-than-expected
slowdown at the start of 2014, and some government economists
think authorities have already started boosting spending to put
a floor under growth.
On Tuesday two surveys showed that manufacturing struggled
in March, with activity at smaller, private firms contracting
for a third month, adding to a run of disappointing data that
has sparked speculation of imminent government-led stimulus.
The official purchasing managing index (PMI) edged up to
50.3 in March from 50.2 in February, pointing to slight
expansion, but some economists said even that suggested weakness
given activity typically picks up more after the Lunar New Year
holidays in February.
The Markit/HSBC Purchasing Managers' Index (PMI), which
focuses more on the private sector, fell to an eight-month low
of 48.0 in March. The index has been below the 50 level since
January, indicating a contraction this year.
"We're still in a subdued part of the cycle," said Louis
Kuijs, chief China economist at the Royal Bank of Scotland.
"I still don't think the downward pressures are tremendous,
but they are large enough for the government to really start to
talk about the need to support growth."
In March, sources told Reuters the central bank was prepared
to loosen monetary policy in order to keep the world's
second-biggest economy growing at the government's target rate
of 7.5 percent..
STIMULUS BY ANOTHER NAME
Premier Li Keqiang said last week the necessary policies
were in place and the government would push ahead with
infrastructure investment, seen by analysts as a signal of
official concern about a slowing economy.
Economists at top government think-tanks believe some of
this spending is already under way, as Li had outlined "policy
reserves" in a report to parliament last month.
"The top priority is stabilising growth. Policy measures
have been prepared and it's just a matter of implementation,"
said Wang Jun, senior economist at China Centre for
International Economic Exchanges.
"The pace of investment and fiscal spending is quickening."
With the economy cooling, weaker and more indebted firms are
beginning to feel the squeeze and a Chinese newspaper reported
on Tuesday a second case of a domestic bond default in less than
As long as the sums involved and affected companies are
relatively small, authorities appear content to let cases like
that serve as an incentive for banks and investors to better
Beijing's concern is, however, that with a deeper prolonged
slump, financial stress could spread undermining confidence in
the entire financial system.
The stimulus is expected to be far more targeted and modest
than the 4 trillion yuan package during the global crisis in
2008-09, to prevent problems of overcapacity and debt as well as
maintaining the government's focus on structural reforms.
"They are doing it quietly. They cannot use the word
stimulus, which has become a negative word," said Xu Gao, chief
economist at Everbright Securities in Beijing.
Xu expects the government spending will see annual economic
growth to rebound to 7.5 percent in the second quarter from his
forecast of 7.3 percent in the first quarter.
The government wants to reduce the economy's dependence on
exports and enhance the role of consumption, but it is unclear
how much growth it might be willing to sacrifice.
"These measures will slow down China's growth in short term,
but will make growth more sustainable in longer term," Asian
Development Bank deputy chief economist Juzhong Zhuang said at
the release of the ADB's 2014 outlook report on Tuesday.
In the report, the ADB lowered its forecast for China's
growth this year to 7.5 percent from 7.7 percent earlier.
(Editing by John Mair)