China manufacturing shows 'mild improvement'

Workers put the finishing touch to a pickup at a factory of SGMW, a joint venture between Chinese carmakers and General Motors in Qingdao in east China's pic/AP

Chinese manufacturing activity has improved slightly in April as domestic demand showed ``mild improvement'', HSBC says, but it warned the world's second-largest economy was still showing signs of weakness.

The banking giant's preliminary purchasing managers' index (PMI), which tracks manufacturing activity in China's factories and workshops, rose to 48.3 in April from a final reading of 48.0 in March, the British banking giant said in a statement on Wednesday.

The index is a closely watched gauge of the health of the Asian economic powerhouse, a key driver of global growth. A reading below 50 signals contraction while anything above points to growth.

The figure shows the country's crucial manufacturing sector is still shrinking, but it is doing so at a slower rate.

``Domestic demand showed mild improvement and deflationary pressures eased,'' HSBC economist Qu Hongbin said in a statement. ``But downside risks to growth are still evident as both new export orders and employment contracted.''

However, shares on the benchmark Shanghai Composite Index were 0.49 per cent lower in late morning trade.

Last week, Beijing said the economy weakened for the second quarter in a row in January-March, growing 7.4 per cent year-on-year, with leaders blaming slow global recovery and domestic structural reforms.

That marked a sharp drop from 7.7 per cent growth in October-December and 7.8 per cent in the three months before that.

Beijing has announced a series of measures aimed at boosting growth, including tax breaks for small enterprises and targeted infrastructure outlays.

The central bank has also said it will cut by up to two percentage points the amount of funds that rural banks must keep in reserve starting from Friday. That move marks the first time Chinese leaders have eased monetary policy for almost two years.

Chinese leaders have publicly ruled out a massive stimulus package to kick-start growth as they try to pivot the economy away from decades of double-digit expansion fuelled by big-ticket investment projects.

But Qu said more measures may be unveiled if needed. ``Whilst initial impact will likely be limited, they signalled readiness to do more if necessary,'' he said.