Growth in China’s manufacturing activity decelerated to its slowest rate in seven months in April, an industry survey sponsored by Caixin showed Tuesday, in a sign of emerging weakness in the world’s second-largest economy.
The Caixin China General Manufacturing Purchasing Managers’ Index (PMI) — closely watched by investors as one of the first available indicators every month of the strength of the Chinese economy — came in at 50.3 last month.
It was down from 51.2 in March and marked the weakest reading since September’s 50.1.
The survey, compiled by information and data analytics provider IHS Markit, is based on figures collected from more than 500 manufacturing companies across the country. A reading above 50 indicates expansion, while a number below 50 points to contraction.
The April reading bodes ill for overall economic growth, which gained momentum in the previous two quarters. Some analysts have expected economic growth to lose steam in the coming months.
“The downward pressure on manufacturing gradually emerged in April,” said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, a subsidiary of Caixin Insight Group, in a statement releasing the manufacturing PMI figures. “The Chinese economy may be starting to embrace a downward trend in the near term as prices of industrial products decline and active restocking comes to an end.”
The official PMI for the manufacturing sector, released by the National Bureau of Statistics (NBS) on Sunday, was 51.2 in April, down from 51.8 in March due to corrections in commodity prices and slower expansion in new orders and output. The April reading was the weakest in six months, NBS data showed.
“Upstream prices saw a meaningful pullback in April, which was the biggest drag to the headline manufacturing PMI,” said analysts with investment bank China International Capital Corp. (CICC).
Prices of commodities such as steel, coal, and midstream products such as chemical fiber all saw “a notable correction” in April, partially driven by the ongoing financial deleveraging that strained interbank liquidity, they said in a report on Sunday.
Government efforts toward deleveraging have stepped up since March. President Xi Jinping last week renewed a pledge to safeguard financial stability and prevent systemic risks, as authorities are worried about the country’s mounting debt levels and hazards buried in its opaque and increasingly complicated financial system. Total borrowing by the government, companies and consumers in China rose to about 260% of gross domestic product at the end of 2016, up from 250% a year earlier, according to research firm Oxford Economics.