China Industrial Upswing Is Latest Sign of Economic Recovery


(Bloomberg) — China’s factory activity beat expectations in March, boosting optimism about the country’s ability to achieve its ambitious growth goal of around 5% this year.

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The Caixin manufacturing purchasing managers’ index rose to 51.1 on Monday — above the 50 mark that indicates expansion for a fifth month, the longest streak in more than two years.

Government data published on Sunday showed manufacturing PMI in March snapped a five-month contraction to rise to the highest in a year. Both numbers beat market expectations, adding to evidence that the country’s industrial sector is building momentum for an economic recovery.

China’s benchmark CSI 300 Index rose 1.5%, the most in a month, on Monday. Stock trading in Hong Kong was closed due to a public holiday. The yield on 10-year government bonds rose 1 basis point to 2.31% as of 11:58 a.m. in Shanghai.

The PMI readings, the first batch of data each month to provide a snapshot of the health of the world’s second-largest economy, suggest the economic recovery gained traction in March following resilient industrial output and exports data in the first two months of the year. The industrial engine is one reason for optimism amid a property crisis, sagging consumer confidence and geopolitical tensions.

Jacqueline Rong, chief China economist at BNP Paribas SA, said that even if seasonal factors were excluded, “industrial momentum might have firmed in March.”

Rekindled Hopes

Exports jumped in the January-February period amid a global trade upcycle, rekindling hopes that improving foreign demand will help drive a broader recovery in the Chinese economy after being a drag last year.

In a sign exports likely continued to be robust in March, the subgauge of new export orders in the official PMI rebounded to 51.3, the first time in a year it expanded. Broader demand also picked up steam, with the subgauge of new orders rising to 53, the highest in a year.

China has tried to boost domestic spending and pledged to provide government funds to encourage consumers and businesses to replace old goods, including cars, appliances and equipment, which should be a boon for industrial firms. It hasn’t unveiled details such as the value of the aid yet.

“Looking forward, the roll-out of policies such as the large-scale equipment upgrade will continue to support demand for the manufacturing sector,” Xiao Jinchuan, an analyst with Guangfa Securities Co., wrote in a note dated Monday.

Figures released by the National Bureau of Statistics also showed a gauge of non-manufacturing activity rose to 53 in March, stronger than economists had estimated.

Caution Remains

Despite the pickup in most subindexes in the PMI surveys, economists cautioned it remains to be seen how sustainable the rebound will be given persistent weakness in a few areas.

A contraction in the subgauge of output prices in the official manufacturing PMI deepened in March, highlighting lingering deflationary pressures that squeeze the profit margins of companies. The Caixin survey also showed both gauges for input costs and output prices hit the lowest since July 2023.

While the data indicates a “generally stable and positive economic recovery,” the economy is still facing headwinds, said Wang Zhe, senior economist at Caixin Insight Group. “Downward economic pressures persist, employment remains subdued, prices remain low, and insufficient effective demand has not been fundamentally resolved, underscoring the need to further boost domestic and external demand.”

Employment in the non-manufacturing sector shrank to the lowest level in five months, according to the NBS, likely a sign demand for services sectors such as tourism, catering and hotels eased after the long Chinese New Year holiday. A similar measure for the manufacturing sector stayed under 50 for a 13th straight month, adding to evidence of a gloomy job market.

“Companies are still facing some outstanding problems in operation, with a rather high proportion of firms reporting intensifying competition and insufficient market demand,” Zhao Qinghe, an NBS analyst, said in a statement on Sunday.

–With assistance from James Mayger.

(Updates with more details, context and commentary.)

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