China's factory activity falls to one-year low

Getty Images

China's manufacturing activity fell to a one-year low in April, a private survey showed on Thursday.

The flash HSBC Purchasing Managers' Index (PMI), compiled by Markit, came in at 49.2, compared with a Reuters forecast for a 49.6 print and following the final March reading of 49.6. A figure below 50 signals contraction.

"Operating conditions in China's manufacturing sector deteriorated slightly for the second month running in April," said Markit economist Annabel Fiddes. "Production increased only marginally, while total new business declined for the second successive month."

Fiddes said stronger deflationary pressures in the sector reflected weak demand conditions, while job shedding across manufacturing firms was recorded for the eighteenth month in a row.

"On a brighter note, demand from overseas improved in April, with new export work rising for the first time in three months," she added.

China markets pulled back modestly following the data; Shanghai Composite fell deeper into negative territory, down 0.3 percent, while the Hang Seng index trimmed gains to 0.6 percent from 0.8 percent.

The Australian dollar fell as low as $0.7718, from $0.7733 before the data.

The weak data lend further credence to the government's move over the weekend to stimulate the economy. On Sunday, the People's Republic of China slashed the reserve requirement ratio (RRR) of major banks by 100 basis points, the most aggressive cut since 2008 during the height of the global financial crisis.

Since November, policymakers have been trying to stem further slowdown in the world's second largest economy, unleashing a series of easing measures by the way of RRR and interest rate cuts.

China's economy grew 7 percent in the first quarter on an annual basis, growth figures revealed last week, the slowest pace in six years.

"The upshot is that although momentum appears to have weakened recently we don't see a reason to be overly concerned," said Julian Evans-Pritchard, China Economist with Capital Economics.

"Activity has eased somewhat going into the second quarter but is not substantially weaker than over the past six months. This time last year, the index was lower, at 48.1," he added, expecting more support measures from authorities in the coming months.

The HSBC/Markit flash reading is typically based on approximately 85–90 percent of total PMI survey responses each month. April's final PMI data will be released on May 4.