China’s manufacturing activity has contracted this month at the fasted rate in 11 months. The flash HSBC Purchasing Managers’ Index (PMI) decreased to 49.2, down from 50.7 in February. The information services company Markit compiles the index by tracking activity in Chinese factories and workshops. The 50-point mark on this index signifies the boundary between growth and contraction. Annabel Fiddes, a Markit economist, believes this represents “a slight deterioration in the health of China's manufacturing sector.” The Markit economist believes that “relatively muted client demand” has contributed to this slowdown as Chinese factories are showing weaker output. The report from HSBC and Markit also suggest that manufacturers face issues of weaker domestic demand and deflationary risks. This has directly affected the jobs market in China, according to HSBC economists. The employment sub-index has been contracting for 17-months straight.
The Chinese economy grew 7.4 per cent last year, marking the slowest pace in almost 25 years. Amid concerns of deflation, slowing manufacturing, a property downturn and local debt, the Chinese government has reduced its growth projections to 7 per cent. They have attempted to stave off these economic downturns by slashing the interest rates twice since November. Economists at both CICC and JP Morgan believe an additional rate cut will be applied sometime in the near future, in addition to a cut to the banks’ reserve requirement ratios. Vice Premier Zhang Gaoli said that although the Chinese economy was facing increased downward pressure, the slowdown has been stabilizing, citing positive data from the employment and services sectors. Premier Li Keqiang mentioned earlier this month that the Chinese government still has “a host of policy instruments at our disposal.”