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China April factory growth unexpectedly slows as economy struggles for traction

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Via Yahoo Finance

BEIJING (Reuters) – Factory activity in China expanded for a second straight month in April but at a much slower pace, an official survey showed on Tuesday, suggesting the economy is still struggling to gain traction despite a flurry of support measures.

The unexpected loss of momentum at the start of the second quarter followed upbeat data in March which had raised hopes among global investors that the world’s second-largest economy was getting back on firmer footing.

The weak manufacturing readings, along with softer construction growth, could stoke debate over how much more stimulus China will need to generate a sustainable recovery.

The official Purchasing Managers’ Index (PMI) for manufacturing unexpectedly fell to 50.1 in April from March’s reading of 50.5, which was the first expansion in four months, data from the statistics bureau showed.

It hovered just above the neutral 50-point mark which separates expansion from contraction on a monthly basis. Analysts surveyed by Reuters had forecast the PMI to match March’s 50.5.

Factory output expanded at a slower pace as growth in new orders also moderated. A sub-index for inventories of raw materials also pulled back significantly from March’s seven-month high.

Some analysts had expected a pullback in the official PMI, arguing that March’s more upbeat readings were likely due to one-off factors. Some manufacturers were believed to have built up inventory in March to take advantage of Beijing’s announcement of value-added tax cuts that went into effect on April 1.

Export orders shrank for the 11th straight month but at a more moderate pace, suggesting global demand still remained sluggish. But optimism is rising that China and United States will reach a trade deal in coming weeks which could ease pressure on Chinese exporters.

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President Donald Trump said on Thursday that he would soon host Chinese leader Xi Jinping at the White House, setting the stage for a possible agreement on trade between the world’s two largest economies.

U.S. Treasury Secretary Steve Mnuchin told the New York Times that negotiations are in “the final laps” as he and Trade Representative Robert Lighthizer prepared to fly to Beijing for more talks this week.

China’s economy grew at a steady 6.4 percent pace in the first quarter, defying expectations for a further slowdown, as industrial production jumped sharply and consumer demand improved.

Better-than-expected March data had prompted a major shift in the market’s expectations for more stimulus this year, with analysts and investors scaling back forecasts for the timing and size of further support measures.

China’s central bank is likely to pause to assess economic conditions before making any further moves to ease lenders’ reserve requirements, after better-than-expected growth data reduced the urgency for action, policy insiders said.

Another survey released by the statistics bureau on Tuesday showed growth in China’s services industry also cooled in April.

The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 54.3 in April from 54.8 in March, though it remained in solid expansion territory.

(Reporting by Stella Qiu and Ryan Woo; Editing by Kim Coghill)

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