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Factory Activity Slides in China

The Caixin Purchasing Managers Index – an index measuring industrial activity in China – fell in April 50.3 after recording a reading of 51.2 in March. The diffusion index can be interpreted as indicating growth for any reading above 50. The Caixan index is a survey of small and medium sized factories, but the results echoed official government data of larger enterprises.

While employment growth slowed, optimism from factory owners also fell. That could be an indication of further weakness in the future. China’s industrial sector is heavily dependent on exports and has been stung by weaker American and European growth, even as the Chinese government has tried for some time to shift the economy to a more balanced mix of consumption and production.

Despite the slowdown, China’s economy officially grew at a rate of 6.9% in the first quarter and most economists think it is likely to hit the government’s full-year target of 6.5%. But weaker demand for Chinese exports coupled with a need to put the brakes on hot real estate markets mean that Chinese GDP growth will likely continue moderating in the future.

One bright spot in the survey results was relief for factories in raw material prices, largely driven by moderating iron ore and energy prices around the world.

 

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