China indices diverge on economic expansion

MANUFACTURING IN China appears to be recovering, having expanded for a fourth straight month last month, boosted by recovery in the car sector as well as improvements in the tobacco and electronics sectors.

However, whether or not manufacturing is really improving and not just showing seasonal signs of recovery depends in part on which data you are reading.

The China Federation of Logistics and Purchasing (CFLP) and the National Bureau of Statistics said their purchasing managers’ index, or PMI, rose 2.1 points to 53.1 in March, up from February’s 51.0 and January’s 50.5. A reading above 50 signifies expansion, and the figure marks a one-year high.

“Exports are better than expected, suggesting the US and EU economies are on the way of recovery,” Cai Jin, vice-chairman of the CFLP, told the Xinhua news agency.

The index tends to rise every March after the Chinese New Year holiday, however, and the data contrast with a PMI from HSBC Holdings plc and Markit Economics which showed manufacturing contracting and export orders falling for a second month.

HSBC economist Qu Hongbin said the tepid new export orders have prolonged the economy’s slowing trend, and he expected the central bank to further ease policies to prop up growth.

The CFLP’s PMI “indicates that economic growth is in an apparent rebound state”, Zhang Liqun, a senior researcher at the Development Research Centre of the State Council, said in a statement.

The expansion may still slow based on market demand and there were still worrying signs of weakness in exports, investment and consumer demand.

“So it is important not to view this as a sign of out-and-out strength,” IHS Global Insight’s Alistair Thornton said in a research document. “Nonetheless, de facto credit easing has clearly buoyed sentiment and should lay the foundation for a better second half. At the very least, things are not getting worse.”

China’s economic growth declined to 8.9 per cent in the final quarter of last year after Beijing hiked interest rates and tightened other controls to cool inflation.