Chinese manufacturing gauge rebounds in March after stimulus

Bloomberg

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A worker carries computer mice at the Logitech International SA factory in Suzhou, Jiangsu Province, China. A worker carries computer mice at the Logitech International SA factory in Suzhou, Jiangsu Province, China.

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A Chinese manufacturing gauge rebounded in March, suggesting stimulus efforts have started to bolster factories in the world’s second-largest economy.
The government’s manufacturing Purchasing Managers’ Index was 50.1 last month, from 49.9 in February, according to the statistics bureau and the China Federation of Logistics and Purchasing in Beijing. Numbers above 50 signal expansion.
Premier Li Keqiang last month said policy makers will step in if growth slows too sharply, while central bank Governor Zhou Xiaochuan flagged room to act. Wednesday’s reading suggests China’s factories, marred by deflation and overcapacity, may be picking up after two interest-rate cuts in the last six months and strengthening in U.S. demand.
“It seems China’s pro-growth measures have achieved some results on the ground,” Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd., said from Shanghai. “However, the downward pressure on China’s economy remains, requiring authorities to take additional measures to help growth.”
The final PMI from HSBC Holdings Plc and Markit Economics for March was 49.6, up from the flash reading of 49.2.
The official PMI beat economists estimates for a reading of 49.7. The non-manufacturing PMI slipped to 53.7 in March, from 53.9 a month earlier.
The Australian dollar, seen as a proxy for China due to the nation’s shipments of raw materials, advanced on the report and the yuan strengthened.
Spring Rebound
The rebound in the factory gauge reflected accelerated production activity after the Spring Festival holiday, while the government’s recent measures to help growth have boosted optimism, the NBS said in a statement.
“Economic growth may stop weakening and start to stabilize in the future,” Zhang Liqun, a state council researcher, wrote in a statement published by the CFLP.
Still, the employment reading in both the manufacturing and non-manufacturing PMIs was in contraction zone.
“Early signs from the official PMIs suggest China’s economy holding steady at a low rate of growth in March,” Bloomberg economists Tom Orlik and Fielding Chen wrote in a note. “Signs of a slide in employment across the manufacturing and non-manufacturing sectors could be a trigger for additional policy support.”
At a forum on Sunday, People’s Bank of China Governor Zhou said the nation’s growth rate has tumbled “a bit” too much and that policy makers have scope to respond. On Monday, the PBOC cut the required down payment for some second homes.
Policy balance
Policymakers are juggling the need to keep growth from slipping too far with plans to press ahead with reforms. China on Tuesday said an insurance system for bank deposits will start on May 1, a step toward scrapping remaining controls on interest rates and allowing lenders to fail in a more market-driven economy.
“The data broadly reflects the current state of the economy – soft but stabilizing,” said Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong. “The data itself is unlikely to push Beijing into action, but Beijing is moving anyway.”

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