Societe Generale
Economists were looking for the index to climb to 48.7. And any reading below 50 signals contraction.
Interestingly, markets have held up in the wake of the news. China's Shanghai Composite climbed 0.9% and Hong Kong's Hang Send jumped 1.9%.
So, why isn't everyone freaked out about the rapid deceleration in the world's second largest economy?
"The HSBC Flash China Manufacturing PMI reading for March suggests that China's growth momentum continued to slow down," said HSBC's Hongbin Qu. "Weakness is broadly-based with domestic demand softening further. We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower."
The expectation for some sort of policy easing or stimulus was unanimous across Wall Street.
Here's Societe Generale's Wei Yao:
Given the rapid growth deceleration, policymakers are unlikely to sit still. Actually, there has been some policy fine-tuning. Last week, two real estate developers were permitted to re- finance in the A-share market, the first cases in nearly four years. However, the chance of aggressive policy easing remains low. We expect a combination of modestly easier liquidity conditions and moderately faster infrastructure investment.
Here's Barclays' Jian Chang:
The government needs to take quick action in view of its growth target of about 7.5%. On 19 March, Premier Li said China will speed up investment and roll out stabilisation measures. The past week saw a series of announcements by the government: NDRC approval of railway projects, local governments to start infrastructure projects, and CSRC approval of equity financing by two developers and announcing a trial program of selling preferred stock. We look for start of more central government-led projects, as well as more investment areas and the service sector being opened up to private capital. We expect the PBoC to maintain easier liquidity conditions in H1 and relax window guidance on bank lending in the near term.
"The new leadership has emphasised deregulation and reform to invigorate the economy since taking office last March," said Chang. "But to be sure, the Premier has his 'bottom-lines' as he repeatedly said: to ensure growth in a 'reasonable range' to generate sufficient employment, and timely handling to make sure there are no regional or systemic financial risks."