Growth rate slows as the world stops buying big
The British bank's preliminary purchasing managers' index (PMI) dropped to 50.5 this month from 51.6 in March.
The PMI tracks manufacturing activity and is a closely watched barometer of the health of the economy.
A reading above 50 indicates expansion, while anything below points to contraction.
The April preliminary result came in lower because new export orders and employment fell, the bank said. The final result would be released on May 2, it said on Tuesday.
"New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak," Qu Hongbin, a Hong Kong economist with HSBC, said.
"Beijing is expected to respond strongly to sustain the economic recovery by increasing efforts to boost domestic investment and consumption in the coming months."
China's 2012 growth of 7.8 per cent was its slowest in 13 years owing to weakness at home and in overseas markets.
Observers had hoped the Chinese economy would rebound this year and drive growth globally after growth increased 7.9 per cent in the last three months of last year, snapping seven straight quarters of slowing expansion.
But the government last week announced a surprisingly weak economic growth rate of 7.7 per cent for the first quarter, below market expectations, fuelling fears the pick-up is faltering.
The International Monetary Fund last week lowered its forecast for China's growth this year to 8 per cent, while Beijing kept its target at 7.5 per cent, unchanged from last year.
Frequently Asked Questions about this Article…
HSBC's preliminary purchasing managers' index (PMI) for China fell to 50.5 in April from 51.6 in March. For investors, the PMI is an important short-term indicator of manufacturing activity: a fall like this signals slower expansion in the world's second-largest economy and can affect global demand, export-oriented companies and market sentiment.
The PMI is a diffusion index that tracks manufacturing activity. A reading above 50 indicates expansion in the manufacturing sector, while a reading below 50 points to contraction. So the April reading of 50.5 still indicates slight expansion, but it shows growth has slowed.
HSBC said the slowdown was driven by sluggish foreign demand: new export orders contracted after a temporary rebound in March, and employment in the sector fell. Those factors pushed the preliminary PMI lower, suggesting external demand for Chinese exporters remains weak.
HSBC's economist Qu Hongbin suggested Beijing is expected to respond strongly to sustain the recovery by increasing efforts to boost domestic investment and consumption in the coming months. That means policymakers may focus on measures to stimulate internal demand rather than rely on exports.
The article notes China grew 7.8% in 2012, its slowest rate in 13 years. The government reported a surprisingly weak 7.7% growth rate for the first quarter, below market expectations. The International Monetary Fund lowered its forecast for China's growth this year to 8%, while Beijing kept its official target at 7.5%.
Because China is a major driver of global growth, slower manufacturing and weaker export orders can take pressure off global demand and growth prospects. Observers had hoped China would rebound and drive global growth, so signs of faltering pick-up can weigh on markets, trade flows and export-oriented businesses worldwide.
HSBC said the final April PMI result would be released on May 2. Investors should watch the final reading because it confirms whether the preliminary signal of slowing manufacturing activity holds, which can influence expectations for Chinese growth and related investment opportunities.
Everyday investors can view the PMI drop as a signal that external demand for Chinese exports is weakening and that China may rely more on domestic stimulus. That could affect sectors tied to global trade, commodity demand and multinational companies. It’s a prompt to review exposure to export-driven assets and consider the potential impact of Chinese policy measures to boost domestic investment and consumption.
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