US-China trade war means it’s ‘too soon to predict a turnaround in fortunes’ for regional manufacturing

Rise in China’s Purchasing Managers’ Index matched by the likes of Indonesia, Vietnam, Thailand, Myanmar, Japan, South Korea and Taiwan in March

Trade talks between China and the United States set to resume in Washington this week after last week’s latest round in Beijing

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US trade representative Robert Lighthizer (left), China's Vice-Premier Liu He and US Treasury Secretary Steven Mnuchin met in Beijing last week for the latest round of trade talks. Photo: EPA

Published: 11:25am, 2 Apr 2019Updated: 10:27pm, 2 Apr 2019

Analysts warned that it was still too early to predict a turn in fortunes for the region’s manufacturing sectors because uncertainties continue to linger on the US-China trade talks, despite the first signs of stabilisation after a sluggish start to the year, as activity bounced back in several Asian economies in March.

China’s Purchasing Managers’ Index (PMI) from both the official government data and the Caixin/Markit private survey beat economists’ forecasts. The official manufacturing PMI rose to 50.5 in March from 49.2 in February, while the Caixin/Markit PMI rose to 50.8 from 49.9. Both readings rose above the 50-point line between expansion and contraction for the first time in four months, signalling a return to growth.

Analysts said China’s infrastructure investment stimulus, which was mostly funded by the issuance of local government special bonds at the beginning of the year, has begun to kick in, and that stabilising Chinese domestic demand pointed to improving conditions for the rest of the region.

However, an eventual recovery in China and in the region largely hinged upon the confirmation of an actual trade agreement between the United States and China along with rolling back of tariffs that were imposed last year, they said.

“There is now a decent chance that growth in China will bottom out slightly earlier than we had anticipated, which would likely mean an improvement in conditions in the rest of the region in the months ahead,” said Alex Holmes, Asia economist at Capital Economics.