China’s manufacturing bounced back in March as Caixin/Markit PMI shows unexpected good news
- Sector unexpectedly returned to growth for the first time in four months in March, according to the Caixin/Markit Manufacturing Purchasing Managers’ Index
- The private business survey released on Monday showed expansion at the strongest pace in eight months
China’s manufacturing sector unexpectedly returned to growth for the first time in four months in March, in a sign that government stimulus measures may be gaining traction and amid indications of progress in US-China trade talks.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI), a private business survey released on Monday, expanded at the strongest pace in eight months in March as it rose to 50.8 from 49.9 in February.
It was the first time in four months that it rose above the 50-point mark that separates growth from contraction, and marks the highest level seen since July 2018.
Economists polled by Reuters had forecast the reading for March would stay unchanged at 49.9.
Government data also showed that both the official manufacturing and non-manufacturing PMIs for March had beaten forecasts. The official manufacturing PMI rose 1.3 points in March to 50.5, while the official non-manufacturing PMI gained 0.5 points to 54.8.
The government’s policies, which aim to boost lending to small and medium-sized enterprises, are apparently bearing fruit, although this needs to be borne out by a few more months of data.
Earlier this month, China announced increased public spending on housing and infrastructure development as well as massive tax cuts to shore up manufacturing and other sectors.
“The government’s policies, which aim to boost lending to small and medium-sized enterprises, are apparently bearing fruit, although this needs to be borne out by a few more months of data,” said Raymond Yeung, Greater China chief economist at ANZ.
The pickup in the Caixin/Markit data was supported by strong demand, from both domestic and external sides, according to sub-indexes.
The sub-index for new orders climbed to a four-month high, and the gauge for new export orders also returned to expansion.
“Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-US trade talks, the situation across the manufacturing sector recovered in March,” said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, a research organisation affiliated with Caixin.
Looking ahead, there is now a decent chance that growth in China may bottom out slightly earlier than we had previously anticipated.
While fiscal stimulus has been credited with helping boost manufacturing in March, analysts are unclear as to whether that marks a real turning point, or rather it is purely a result of the injection.
“One part [of the reason] is the additional demand produced by more projects, another part is the result of proactive re-stocking by companies,” said Li Bei, founder of Shanghai Banxia Investment Management.
“Both the parts are unsustainable, and [the PMI index] in the future will drop again, the overall economy will go down again as well.”
China’s economy slowed to its lowest growth point for almost 30 years in the midst of a deleveraging campaign that looked to remove debt from the economy. However, the government has reversed tack, in a bid to boost sluggish demand.
“Looking ahead, there is now a decent chance that growth in China may bottom out slightly earlier than we had previously anticipated,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“That said, we still think growth could weaken again in the near-term. The recent trajectory of credit growth still points to a slowdown in the coming months.”
Analysts expect more stimulus measures over the next few months, since the capital released by previous measures has already dried up and industrial profits in China are declining.
Ming Ming, head of fixed income research at Citic Securities in Beijing, said the Chinese central bank was likely to cut the reserve requirement ratio again in April in an effort to fill the liquidity gap.
The State Council, China’s cabinet said on Sunday that the country continue to suspend additional tariffs on US cars and parts after April 1, after the world’s largest two economies said to have made progress in the trade talk last week.
Chinese Vice-Premier Liu He will head to Washington this week for another round of negotiations with US trade officials, following last week’s negotiations in Beijing.
