Weak flash HSBC PMI sparks policy easing speculation

Economists predicted there was room for further monetary policy easing after preliminary private data showed Thursday that the economic slowdown in China might be extended.

The HSBC flash China manufacturing purchasing managers index (PMI), the earliest indicator of China's industrial activity during the month, dropped back to 48.1 in March, after a straight four months rebound to 49.6 in February.

"The soft-patch in manufacturing was in line with the recent downside surprise in industrial production growth. Growth momentum could slow down further amid a combination of sluggish new export orders and softening domestic demand. This calls for further easing steps from the Beijing authority," HSBC chief China economist Qu Hongbin said in a statement sent to the Global Times yesterday.

"It looks like China's economy is undergoing a destocking process, as new orders contract at a faster rate and both inventory and output move from expansionary territory in February to contractionary territory in March," Zhang Zhiwei, Nomura's chief China economist, said in a research note sent to the Global Times yesterday. Zhang predicted an interest rate cut is looming as the pressure builds on policymakers.

Meanwhile, Frances Cheung, senior strategist at Credit Agricole CIB, said that the differentiated required reserve ratio appeared to be a favored tool against the current economic and market environment. She said that the country's central bank is willing to provide liquidity when needed, but it is reluctant to ease more aggressively.

The latest data showed that imports to China from overseas, including Japan, continued to fall in February. "As such, attention will still be on how quick the slowdown in the mainland is," Cheung said.