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After four straight monthly increases, the HSBC flash manufacturing PMI slipped to 48.1 in March, from 49.6 the previous month.In his latest report, Ting Lu, China economist for Bank of America-Merrill Lynch points out three main reasons for the decline:
“First, compared with official PMI, the HSBC index focuses more on SME, which could be hit harder by tight liquidity, though we believe China’s liquidity condition is being improved. Second, since China’s export manufacturers tend to be of small scale, the HSBC PMI sample could also have more exposure to exports. In Jan-Feb, export growth decelerated to 6.9% YoY from 14.3% in 4Q11. Third, small manufacturers, which lack of economy of scale, are being consolidated into big ones.”
While a reading below 50 indicates contractionary level and the figure is likely to bring out the China bears, Lu says that China is not looking at a hard landing. Lu expects liquidity conditions to improve and projects year-over-year GDP growth of 8.3 – 8.5 per cent this in the first quarter.