Beijing, May 3

Chinese factory activity weakened further in April, a private survey indicated today, as muted demand and market weakness hit the struggling export-oriented sector.

The Purchasing Managers’ Index by Caixin, which tracks activity in the country’s factories and workshops, fell to 49.4 for April, a 0.3 point drop from the month before and the 14th consecutive month of decline.

A reading above 50 signals expanding activity, while anything below indicates shrinkage.

He Fan, chief economist at Caixin Insight Group, said all of the index’s categories worsened month-on-month, indicating that the world’s second-largest economy ‘lacks a solid foundation for recovery and is still in the process of bottoming out’.

“The government needs to keep a close watch on the risk of a further economic downturn,” he added.

The key manufacturing sector has been struggling for months in the face of sagging global demand for Chinese products.

The Caixin figures showed that new export work fell for the fifth straight month and factories continued to shed workers at a rate ‘only fractionally slower’ than the post-financial crisis record set in February, it said.

The figures were darker than official data released on Sunday, which showed expansion for the second successive month at 50.1.

The Caixin reading puts a greater emphasis on smaller firms than the official statistics.

Analysts said the official reading in April argues against extra stimulus to avoid fuelling housing prices or flooding sectors already over capacity with cheap credit.

“As investment recovered, the property market turned around and infrastructure construction speeded up,” the National Bureau of Statistics said in a statement.

Julian Evans-Pritchard of Capital Economics said the latest data were disappointing and weaker than expected, but nevertheless reiterated an upbeat view on the short-term outlook for China’s economy.

“There are few signs in the latest readings that the ongoing property rebound, a key driver of the recent recovery, is losing steam,” he said in a note, adding that the figures do not ‘alter our view that China is in the midst of a cyclical rebound that should continue for at least another couple of quarters’.

Beijing has been trying to retool its economy to encourage domestic consumption, and move away from infrastructure investment and exports as the main drivers of growth.

But the transition is proving bumpy and the growth slowdown has alarmed investors worldwide.

Chinese stock markets shrugged off the latest figures, with the benchmark Shanghai Composite Index up 1.60 per cent by the noon break today.

China’s economy, a vital driver of global expansion, grew 6.9 per cent last year, its weakest rate in a quarter of a century.

Leaders have targeted a growth range of 6.5 to seven per cent this year.