China came up with another set of weak numbers on Friday with two surveys of manufacturing activity showing that economic momentum slowed yet again in May, prompting analysts to say it’s time China got on with revving up growth.
China’s official Purchasing Managers’ Index fell to 50.4 in May, the weakest reading this year, while HSBC’s measure of China’s factory sector declined for a seventh straight month to 48.4.
“The economy continues to decelerate,” Frederic Neumann, Co-Head of Asian Economics Research at HSBC told CNBC Asia’s “Cash Flow”. “It is very clear from these numbers that more needs to be done and micro-surgery might no longer do it because the patient is in critical condition here.”
He expects China’s central bank to cut reserve requirement ratios for banks as soon as this month and the government to embark on more fiscal spending but “on the stealth” because they wouldn’t want to be seen as fanning inflation.
According to Raymond Yeung, Senior Economist, Greater China at ANZ Bank, while the numbers do not depict a “doomsday scenario,” they are weaker than expected and will put pressure on the government to do more. Beijing will likely ease monetary policy and also commit to more spending on projects.
“In the past few days, we have seen Premier Wen Jiabao restating that growth is now probably the top priority for the country and we have seen the NDRC (National Development and Reform Commission), the national planner, has approved more than a hundred projects in one, two days,” Yeung told CNBC’s “The Call”.
In a sign the government is already growing worried about the slowdown, a state-backed newspaper reported on Tuesday that China will fast-track approvals for infrastructure investment.
The Chinese government has however ruled out the possibility of implementing anything close to the 4-trillion-yuan ($628 billion) package it committed to in 2008.
Keith Tucker, Chief Investment Officer of Tora Capital, a San Francisco-based hedge fund says the next few months will be “crucial” for the Chinese economy as easing measures, like cutting reserve requirement ratios for lenders, implemented earlier this year would start taking effect.
“I think the real important numbers (economic data) are going to come out over the next two months, when you have some of the easing and some of the government stimulus trying to kick in.” Tucker said. “If it doesn’t (show easing has worked), it can get pretty ugly.”
By CNBC’s Jean Chua.