China's factory activity lowest in a year: HSBC final PMI

Weak China April PMI not a surprise: HSBC

The latest gauge of China's manufacturing activity showed the country's vast factory sector remained in contraction for the month of April.

The HSBC final Purchasing Managers' Index (PMI) fell to 48.9, its fastest drop in a year, down from the preliminary reading of 49.2 and weakening from the 49.6 print in March. A reading below 50 indicates contraction.

The figures follow Friday's official print which showed PMI in April unchanged at 50.1 from the previous month. The official PMI tends to track the bigger manufacturers while the HSBC gauge surveys the small and medium-sized firms.

Workers producing dolls in a factory in Lianyungang, China's Jiangsu province.
Stringer | AFP | Getty Images

"I think it's the weakest number in a while and it shows continual sequential contraction," said Julia Wang, greater China economist with HSBC. "I definitely think that after the above 50 official reading last week, some people might have hoped that we see some signs of stabilization today."

The overall new orders sub-index dipped to 48.7 in April, the sharpest contraction in a year, although new export orders showed tentative signs of improvement. Both input and output prices declined for a ninth month in April, while manufacturing employment contracted for an 18th month.

"Data suggested that relatively weak domestic demand was the main driver of reduced new business, as new export work picked up in April (albeit marginally)," according to a note from Markit, who compiled the PMI data. "Consequently, employment in the sector continued to decline, while purchasing activity fell at the quickest rate in 13 months."

China's economy has been battling a weak external environment, sluggish domestic demand and a slowing property sector for a while. The economy expanded 7.4 percent last year, its slowest full-year pace since 1990 and undershooting the government's targets for the first time since 1998.

The data strengthens the argument for more monetary stimulus, which helped to push the Shanghai Composite back into positive territory after suffering initially losses on the back of the data. Meanwhile, the Australian dollar fell as low as 0.7800 against the U.S. dollar.

Since November, the People's Bank of China has cut interest rates twice and lowered the reserve requirement ratios of major banks two times.

"We think that third quarter in China is going to be quite tough. So the question is: will there be more stimulus coming before or after," Tony Nash, vice president at Delta Economics, told CNBC.

"I think what you're starting to see is less investment focused or less central government investment focused [stimulus]," he said. "It will be more about getting loans in the system getting people investing from the private sector."