China Manufacturing May Show Fifth Straight Contraction

China’s manufacturing may contract for a fifth straight month in March, bolstering the case for Premier Wen Jiabao to add measures to sustain growth even as he prolongs a campaign to cool property prices.

The preliminary 48.1 reading of an index from HSBC Holdings Plc and Markit Economics today is a four-month low and compares with a final 49.6 in February. A result above 50 points to an expansion and a number below 50 indicates contraction.

Wen this month pledged pre-emptive fine-tuning of fiscal and monetary policies to support economic growth after increases in gross domestic product slowed throughout 2011. The central bank may cut interest rates and banks’ reserve requirements to speed up expansion, according to Nomura Holdings Inc.

“Economic growth is set to slow further this quarter to about 8 percent,” Ding Shuang, a Hong Kong-based economist at Citigroup Inc., said before today’s release. “The government should accelerate earmarking this year’s fiscal funding to boost investment and ease lending curbs,” including a reserve-ratio cut this month that would be the third since November, Ding said.

The MSCI Asia Pacific Index of stocks pared gains following the report, rising 0.4 percent at 11:45 a.m. Tokyo time after climbing as much as 0.8 percent.

The period of contraction for the index is the longest since the global financial crisis three years ago when the index stayed below 50 for eight months ending in March 2009.

400 Companies

The preliminary reading, called the Flash PMI, is from 85 percent to 90 percent of responses to a survey of more than 400 companies. A separate PMI from China’s logistics federation and the National Bureau of Statistics, which has a different sample and methodology, showed an expansion for a third month in February.

Wen, in his annual state-of-the-nation address this month, pledged to complete more affordable homes and ensure funding for key investment projects while extending his campaign to cool property prices.

China’s economic growth slowed throughout last year to 8.9 percent in the fourth quarter, prompting the central bank to add liquidity via open-market operations and reduce banks’ reserve requirements twice since November.

Confidence in China’s economy is recovering, according to two central bank surveys of bankers and company executives released this week. Respondents’ expectations improved for market demand and export orders, while more bankers said monetary policy will tend to be looser next quarter, the central bank said.

Better Shape

The global economy is in better shape than three months ago even as vulnerabilities still need to be addressed, International Monetary Fund Managing Director Christine Lagarde said this week at a conference in New Delhi. At the same time, Lagarde said later at a press briefing that it shouldn’t be assumed the period of crisis is over.

Improving prospects for China’s exports have prompted economists from Nomura Holdings Inc. and Deutsche Bank AG to raise their 2012 growth forecasts. Nomura increased its estimate to 8.2 percent from 7.9 percent and Deutsche Bank boosted its projection to 8.6 percent from 8.3 percent.

Wen set a 7.5 percent growth target for 2012, lower than the 8 percent annual goal in place since 2005, as he aims to tilt the nation’s growth toward consumption from capital spending and exports.

Sany Group Co. (SANYIZ), owner of China’s biggest machinery maker, may see sales growth slow by about half to 25 percent this year as the economy decelerates, Xiang Wenbo, a board member and president of the company’s Shanghai-listed unit, said in Beijing March 10.

“The industry’s extraordinary growth, brought about by the government’s stimulus package, is not sustainable,” said Xiang, whose company is based in Changsha, Hunan province. “Still, the Chinese market will be the best in the world,” he said.