China factory data to test political calculations According to China's political calendar, big decisions about economic policy this year are supposed to wait until the autumn, when a major meeting of the Communist party brings together the country's top leaders. But a deteriorating economic landscape, highlighted by a new survey of industry, could overwhelm the political calendar and test the new government's resolve to refrain from deploying short-term fixes for sluggish growth. The purchasing managers" index for the manufacturing sector is on track to fall to a seven-month low of 49.6 in May from 50.4 in April, according to a preliminary survey published by HSBC. The PMI will be a wake-up call for officials. They are too complacent and have underestimated the speed of the deceleration of the economy," said Shen Jianguang, an economist with Mizuho Securities. Most alarming in the PMI was the fact that declines in the gauges of new orders and employment appeared to be driven by a slump in domestic demand rather than external weakness. "I expect that starting from June or July, they will shift to a more expansionary fiscal policy, cutting taxes and spending more," Mr Shen said. If the government does ramp up fiscal support for the economy, it will mark a break from the holding pattern that is currently in effect. Li Keqiang, China's premier, said last week that the government had limited scope to unleash more spending or policy stimulus. Attention has already been focusing on the third plenum of the 18th Communist Party Congress, which is likely to be convened in October or November. Xi Jinping, the country's new president, will use that gathering to flesh out his policy agenda. Messrs Xi and Li have made clear that they want deeper structural reforms to the economy rather than short-term boosts that could wind up fuelling a housing bubble and a bigger build-up of debt. Wei Yao, an analyst with Société Générale, said the government would implement only a "cautious easing" in the meantime, keeping her bearish about the economic outlook. "The possible short-term positive catalyst that the financial market is so desperately looking for can only come from reform progress," Ms Wei said. To that end, she said a meeting that Mr Li will chair about China's urbanisation strategy in the coming weeks was "the event to watch." That meeting will produce a plan for long-term urbanisation and it is expected to take place before the end of June. The government has in recent weeks taken steps to make it easier for private companies to obtain approval for investment projects, another plank in its efforts to put the economy on sounder footing. While analysts have welcomed this move, they say it will take months, if not years, to see its impact. China's economy grew 7.8 per cent last year, its slowest in more than a decade. At the start of this year, most analysts had expected it to recover towards 8 per cent this year, but after a shaky first five months many now forecast a renewed slowdown.