By Lucy Hornby
BEIJING, March 21 Growth in China's vast
manufacturing sector picked up in March after a holiday dip, a
preliminary survey of factory managers showed on Thursday,
pointing towards solid but not spectacular first-quarter growth
in the world's second-largest economy.
The HSBC Purchasing Managers' Index for March revived to
51.7 in March from 50.4 in February, but remained below a
two-year high of 52.3 reached at the beginning of the year.
The pullback in February had raised concerns in financial
markets that China's recovery was losing steam. Indeed, official
data earlier in March suggested the economy had started 2013
with only tepid growth after a burst in the fourth quarter.
Economists' opinions were mixed on how much recovery
momentum would be carried into the second quarter, with some
pointing to weak commodity demand while others took comfort in
the stronger March showing.
"Current readings around the 50 points level seem to us to
be consistent with GDP growth close to 8 percent year-on-year,
and investors should not expect numbers close to the 55 points
readings from the past when GDP growth was firmer," wrote
Dariusz Kowalczyk of Credit Agricole-CIB in Hong Kong.
"We are sanguine about China beating its GDP growth target."
The perk-up in March comes after the long Lunar New Year
holiday that closed most of China's factories for at least two
weeks in February. The holiday falls in either January or
February, distorting underlying trends early in the year.
A sub-index measuring factory output rose in March to 52.8,
recovering from a dip in February, HSBC said.
Sub-indexes tracking new orders and new export orders both
showed the pace of growth accelerating, indicating that
manufacturing output should be supported in the near future.
The March reading "implies that the Chinese economy is still
on track for gradual growth recovery. Inflation remains well
behaved, leaving room for Beijing to keep policy relatively
accommodative in a bid to sustain growth recovery," wrote HSBC's
China economist Qu Hongbin.
A reading above 50 indicates the pace of activity increased
from the previous month.
That could belie weak January and February electricity
output figures, cited by Capital Economics economists Mark
Williams and Qinwei Wang, who conclude that first quarter growth
is likely to be slower than the fourth quarter's 7.9 percent.
They also looked at a drop in domestic freight volumes, but
conceded construction activity and port volumes have improved.
Taken together, the signs are that "economic growth is
slowing in the current quarter, much sooner than most had
expected," Williams and Wang concluded.
"The latest data suggest that growth in (quarter-on-quarter)
terms has dropped back to the pace seen in mid-2012, before the
policy-driven rebound took effect."
Asia's top companies, especially those in the export engines
of China, Japan and South Korea, are less optimistic about their
business outlooks as global demand remains sluggish, the latest
quarterly Thomson Reuters/INSEAD Asia Business Sentiment Survey
showed this week.
BUT RECOVERY MODEST
Snapshots of the diverse economy present a mixed picture.
A recent trip to Shanxi, China's coal capital, revealed full
stockyards and pessimistic managers, said roving analyst
Nicholas Zhu of SDR Consulting.
"That shows downstream demand is relatively poor," he said.
But a separate trip to agriculture-dependent Sichuan
province painted a different picture.
"I saw a lot of investment, not super-strong but still
coming along," Zhu added.
Shanghai copper futures are flat through the fourth
quarter of 2013, implying that traders see relatively slack
demand for the building material in coming months.
"Domestic demand is definitely not as strong as it used to
be. Demand will climb but not as steeply as before," said
analyst Fang Junfeng of China International Futures Co., one of
the nation's biggest futures brokers.
Other PMI sub-indexes also pointed to an economy humming
along but unlikely to deliver the blistering pace of growth seen
in previous years.
Sub-indexes measuring both input and output prices fell,
indicating overcapacity upstream and soft demand. That's in line
with over a year of falling producer prices, although official
data has shown some signs that the decline is bottoming out. An
employment sub-index also softened.
China's export sector was badly hit in 2012 by a slump in
demand from Europe and Japan.
In the first two months of 2013 combined, Taiwan data showed
its export orders from mainland China grew by a cool 1 percent
year-on-year. That primarily reflects demand for electronics
components to be assembled in China and shipped elsewhere.
China stocks erased marginal early losses to move
higher after the flash PMI data while the MSCI Asia ex-Japan
share index rose about 0.2 percent. The
Australian dollar firmed briefly.
As China's economy matures, its pace of growth is expected
to slow to a more sustainable footing -- an expectation
reflected in the nation's 7.5 percent GDP growth target for 2013
released at the annual legislative session this month.
A new administration appears to have taken to heart critics'
warnings that even that growth rate could be threatened without
further reforms, including liberalising interest rates, making
the yuan more tradable and curbing privileges of state-owned
In the short term, the economy would likely respond more if
there was any relaxation of government restrictions on the
property sector, which supports over 40 industries. A third of
Chinese expect home prices will rise in the second quarter,
although the central government has said it will not ease curbs
and indeed has rolled out new ones to keep home prices under