Weaker manufacturing PMI may signal policy changes

The HSBC China flash manufacturing PMI fell to an eight-month low in March, deepening concern that the Chinese economy might not meet its 7.5 percent growth target in 2014.

Feb manufacturing PMI drops to 50.2

HSBC flash PMI sinks to a 7-month low

The preliminary Purchasing Managers' Index from HSBC Holdings Plc dropped to 48.1 from 48.5 in February.

Contrary to expectations of a mild rebound as activity normalized after seasonal distortions, China's growth momentum continued to slow following the Lunar New Year.

First-quarter GDP growth is likely to fall below the annual growth target of 7.5 percent, according to an HSBC report released on Monday.

The report found that domestic demand has weakened at a pace similar to that seen in the middle of last year, which is likely due to slowing investment growth, a softer property market and continued efforts to eliminate excess industrial capacity.

"With no signs suggesting meaningful improvement in domestic demand, the ongoing softening momentum will test Beijing's bottom line for growth of about 7 percent in coming months and could threaten labor market stability," the report said.

Qu Hongbin and Sun Junwei, economists at HSBC, emphasized that they expect Chinese authorities to launch a series of policy measures to stabilize growth sooner rather than later. Likely options include lowering entry barriers to encourage private investment, targeting spending on subways, clean air and public housing, and guiding lending rates lower.

Zhou Mingjian, director of the research institute of Golden Sun Securities Co Ltd, said the downturn trend reveals problems in China's resource allocations.