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China Manufacturing Expands At Faster Pace, PMI Gauges Show
Perspective | 05 April 2013

China’s manufacturing expanded at a faster pace last month, indicating a recovery in the world’s second-largest economy is sustaining momentum.

The Purchasing Managers’ Index (PMI) was 50.9, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on 1 April in Beijing, an 11-month high and up from 50.1 in February. A separate gauge from HSBC Holdings Plc and Markit Economics rose to 51.6 in March from 50.4. Readings above 50 indicate expansion.

Gauges of output and export orders advanced in the official survey while an index of input prices declined, a boost for new Premier Li Keqiang as he seeks to spur expansion without fanning inflation. The March improvement follows the weakest January-February growth for factory output since 2009 and Goldman Sachs Group’s questioning of the strength of exports.

“We are clearly in a lot better state than we were at the end of last year,” Alistair Thornton, a Beijing-based economist at researcher IHS Incorporated, said in a Bloomberg Television interview, terming the momentum “modest.” At the same time, the economy faces “fairly large headwinds” including property curbs and tighter supervision of so-called shadow banking, he said.

The government PMI was lower than the 51.2 median estimate of 26 analysts surveyed by Bloomberg News. The HSBC index’s final reading matched the median estimate of 10 analysts. The preliminary level issued 21 March was 51.7.

‘Weak’ Recovery
The benchmark Shanghai Composite Index of stocks fell 0.1 percent at the close. The gauge dropped 3.9 percent in the week ended 29 March, the most in five weeks, while the yuan strengthened for a fifth straight week and touched a 19-year high.

The reports released on 1 April “reinforce our view of a weak economic recovery” in the first half and a “sharp slowdown” in the second half, Zhang Zhiwei, chief China economist at Nomura Holdings in Hong Kong, said in a note.

The surveys compare with a quarterly report showing confidence among big Japanese manufacturers improved by less than economists estimated. Another HSBC survey showed South Korea’s manufacturing expanded at a faster pace in March.

China’s largest cities, including Beijing and Shanghai, tightened rules on home purchases, effective 31 March, after the central government called for stepped-up efforts to cool the property market. The nation’s banking regulator told lenders last week to limit investments of client funds in debt that isn’t publicly traded and to isolate such risks from their operations.

Growth Pickup
Economic growth may have accelerated for a second quarter to 8.1 percent in the first three months of this year, according to the median estimate in a Bloomberg News survey last month. Gross domestic product expanded 7.9 percent in the final three months of last year after a 7.4 percent gain in the previous quarter, reversing a seven-quarter slowdown.

Previous figures have presented a mixed picture of the recovery so far this year. Retail sales had their weakest January-February growth since 2004, while foreign direct investment rose for the first time in nine months in February and industrial companies’ profits gained 17.2 percent in the first two months of the year.

The official PMI report showed improvement across sub-indexes. An output gauge rose to 52.7 in March from 51.2 in February, new orders increased to 52.3 from 50.1 and new export orders climbed to 50.9 from 47.3. Input prices, a measure of inflation, declined to 50.6 from 55.5.

Export Figures
Goldman Sachs said in a research report last week that China’s export statistics probably overstated growth in the last few months, potentially because companies provided inflated data.

The federation in January increased the number of companies in its survey to 3,000 from 820 and reclassified the industries they cover into 21 groups from 31. HSBC’s index is based on responses from purchasing managers at more than 420 businesses and is weighted more toward small companies.

Li, who succeeded Wen Jiabao as premier last month in a once-a-decade leadership transition, signalled last week that the government will take steps this year to loosen state control over interest rates and the yuan as part of efforts to sustain economic growth.

“China will actively push forward reforms in important sectors and try to make substantial progress,” the State Council, or cabinet, said in a 27 March statement after a meeting led by Li. The government will work out a plan for fiscal and tax policy changes this year, according to the statement.

Great Wall Motor Company, China’s biggest maker of SUVs and pickup trucks, reported on 21 March that its profit surged to a record last year, helped by demand for its Haval vehicles. The Baoding-based automaker’s net income rose 66 percent to 5.69 billion yuan (US$916 million) in 2012.

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