Chinese manufacturing expands in March for the first time in nine months

01 April 2016

China's manufacturing activity unexpectedly expanded in March for the first time in nine months, an official survey showed today, raising hopes that downward pressure on the world's second-largest economy was easing.

However, even as output increased new orders from home and abroad returned, factories continued to shed jobs at a significant rate, underlining the risks for leaders in Beijing as they tried to cut industrial overcapacity without sparking massive layoffs.

The official Purchasing Managers' Index (PMI) increased to 50.2 in March, up from 49 in February but it was marginally above the 50-point mark separating growth from contraction. The findings easily beat expectations of a further contraction.

According to economists, a blitz of stimulus measures sustained over a year may finally be showing some dividends, especially steps to revive the ailing property market, with now surging home sales increasing demand for materials from cement to steel.

Meanwhile, a government spending spree on infrastructure, while slower to get going, now seemed to be having a similar effect.

China watchers, however, said greater support would still be needed from Beijing and the central bank in the form of higher spending and interest rate cuts as the economy would likely remain weak.

Meanwhile, the Caixin manufacturing Purchasing Managers' Index was up to 49.7 in March from 48.0 in February, a survey published by Markit Economics showed yesterday.

Although a sub-50 reading indicated contraction, this was the highest score in 13 months and showed only a marginal deterioration. It also overtook the expected score of 48.3.

Similarly, the official non-manufacturing PMI was up to 53.8 in March from 52.7 in prior month.

According to Julian Evans-Pritchard at Capital Economics, the improvement in all three PMIs was likely partly seasonal, given that disruptions from the Chinese New Year faded last month, RTT News reported.

However, the increases last month appeared too large to be entirely seasonal and did suggest that recent stimulus measures were now gaining more traction, he added.

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