China’s March official factory PMI at 11-month high

Tuesday, 2 April 2013 00:05 - - {{hitsCtrl.values.hits}}

Reuters: China’s factory production ran at its fastest in 11 months in March, according to the official manufacturing purchasing managers index published on Monday, though the rise to 50.9 missed market expectations of a bigger headline jump.

The PMI missed market expectations, based on a Reuters poll of analysts, for a solid up tick to 52.0 from February’s five-month low of 50.1, confounding the view of some analysts that the world’s second-biggest economy might be recovering faster than expected from a slowdown in 2012 that dragged growth to a 13-year low of 7.8%.

But a rise in the output index to a 10-month high of 52.7, an 11-month high of 52.3 for overall new orders and new export orders also at an 11-month peak 50.9, offered signs that China’s economic recovery is gaining traction.

“The improvement in the index, which changes the downward trend of the first two months of the year, indicates that the economic outlook in general is stabilising,” an analyst at the Development Research Centre Zhang Liqun said, a state think-tank, said in a statement accompanying the index.

Manufacturers of cars, electronics, machinery and equipment saw business improve while ferrous metal smelters and petroleum processing and coking activity slowed, the PMI survey found.

February’s drop took the official PMI to within a whisker of the 50-point mark that separates accelerating from slowing growth in China’s giant factory sector.

Investors broadly believe that last month’s reading was mainly the product of a holiday-induced lull in activity and expected March to return to a rising trend. The Lunar New Year fell in February this year and in January last year.

Many Chinese factories closed for at least two weeks in February as millions of migrant workers in towns headed back to their rural homes to celebrate the holiday with their families.

A private sector survey of purchasing managers, sponsored by HSBC and published earlier in March, signalled that activity in China’s industrial sector quickened in March, pointing to solid first-quarter growth across the economy.

An update to that survey which tracks mainly small and medium-sized firms in the private sector as opposed to the mainly large, state-backed companies in the official survey is scheduled to be published at 0145 GMT on Monday.

Economists broadly expect the economy to enjoy a steady but gentle recovery in 2013, boosted mainly by internal growth engines such as infrastructure investment and household consumption, as Beijing pushes forward an urbanisation program worth an estimated 400 trillion Yuan that will help China rebalance its economic structure.

Chinese export data in January and February showed external demand is reviving, a trend widely expected to extend in coming months which could give the economy an extra lift.

But the strength and extent of the economic recovery hinges on when the central bank tightens its grip on monetary policy after easing liquidity and promoting credit expansion through much of 2012 to kick-start the recovery.