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Factory activity drops in China, again

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Besides the latest story about ghost towns in China, yet another story of economic difficulties in China. The lack of demand for iron ore suggests a slowing manufacturing and building industry, which appears to be confirmed with the factory activity dropping. This may be one of the most challenging periods for China in decades.

China's manufacturing sector activity shrank in March for a fifth successive month, with the overall rate of contraction accelerating and new orders sinking to a four-month low, the HSBC flash purchasing managers index showed on Thursday.

The PMI, the earliest indicator of China's industrial activity, fell back from February's four month high, slipping to 48.1, within a whisker of the level that economists at HSBC consider a crucial level dividing decline from growth.

Slowing activity could mean a further relaxation of monetary policy to help underpin growth in the world's second biggest economy, but lingering inflation risks uncovered by the survey highlight the dilemma facing China's policy makers who are determined to keep a lid on prices.

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