Key indicator shows China recovering - Emirates24|7

Key indicator shows China recovering

(AP)

A key gauge of Chinese manufacturing improved in February for the third month in a row as factories restocked in anticipation of an early revival in the economy despite deepening global gloom.

The official purchasing managers' index (PMI) remained below the no-change line of 50 that marks the difference between expansion and contraction for the fifth month in a row.

But it is now well clear of a record low of 38.8 plumbed in November.

Economists said the rise in the gauge to 49.0 from 45.3 in January was encouraging but cautioned that it was too early to be confident about a marked pick-up in final demand.

"The continuous improvement in the PMI over the past three months is certainly positive news," Yu Song and Helen Qiao, economists at Goldman Sachs, said in a note to clients.

"The February reading in particular is suggesting manufacturing activities are getting back close to expansionary territory," they said.

The index bottomed out after Beijing announced four trillion yuan (Dh2.1trn) in stimulus spending in November to make up for a collapse in Chinese exports and a downturn in the domestic property sector. As things stand, the pace of government spending could slow this year. Outlays will rise 22 per cent to 7.6trn yuan, according to Reuters calculations based on China's military budget, announced on Wednesday. That would be down from last year's 25.4 per cent clip.

Every sub-index in the official PMI, released by the China Federation of Logistics and Purchasing (CFLP), rose in February.

Output and new orders climbed to 51.2 and 50.4, respectively, both returning to mild growth after shrinking for four months. "China's economy is possibly on the road to a sustainable recovery," said Zhang Liqun, an economist who comments on the survey for the logistics federation.

"Policies are beginning to show their effectiveness, supporting quite fast economic growth," he said. Optimism that the economy could be bouncing back has been reinforced by a surge in lending. New local currency loans hit a record 1.6trn yuan in January, and local media reported that banks lent about 1trn yuan in February, a sum that is still extremely high by historical standards.

But Li Yang, a researcher with the Chinese Academy of Social Sciences, the top government think-tank, said the PMI mainly reflected the views of high-level corporate managers and not necessarily the outlook for the broader economy.

"They have reached a certain consensus about the government's policies and measures to boost growth – they approve of them," Li said.

"But for the entire economy to improve, we need the broader society to see things rebounding. That still needs time."

Economists pointed to a recent reversal in steel prices as evidence that industry, in replenishing pared-down stockpiles of raw materials and finished products, had got ahead of itself in anticipating a revival in end-demand.

"There's still good reason for caution. The manufacturing sector overshot last year in cutting inventories, and a bounce was inevitable," said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong.

"Factories will struggle to sustain the increase. I think we will bounce along at low rates of activity for the next six months or so," he said.

 

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