After months of largely negative reports, the Chinese economy received some good news Friday, when an official survey showed that activity in the manufacturing sector expanded in March for the first time in nine months. The service sector expanded as well.
The official Purchasing Managers’ Index (PMI) rose to 50.2 in March, up from 49 in February, beat analysts’ expectations for more contraction.
Still, the number was only a tad above the 50-point mark separating growth from contraction.
There was more mixed news. Even as output rose and new orders from home and abroad returned to growth, factories still shed jobs at a significant rate as the government curtailed overcapacity in the industrial sector.
Economists credited the expansion to the stimulus measures enacted over the past year finally kicking in. Surging home sales are increasing demand for materials from cement to steel.
Despite the rise, the economy remains in slowdown mode, the private Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) which focuses on smaller firms, showed manufacturing activity shrinking in March. The survey came in at 49.7, still below the neutral 50-point level, but a significant 1.7 point jump from February’s five-month low. This was the slowest pace of shrinkage in 13 months.
But even as manufacturing shrank, the survey found that output, total new orders and output prices all grew for the first time in more than half a year.
“The output and new order categories rose above the neutral 50-point level, indicating that the stimulus policies the government has implemented have begun to take hold,” noted Caixin chief economist He Fan.
In light of all this, analysts think that the government and central bank will need to do more to get the economy moving, such as more spending and interest rate cuts.
“It does seem to indicate manufacturing is warming up a bit, new orders were…a very strong figure,” Raymond Yeung, senior economist at ANZ in Hong Kong told Reuters. “We think there are basically two factors driving the recovery: the first is a possible acceleration in infrastructure spending; the second is a broader pickup in external demand.”
However, the two surveys agreed that manufacturers were shedding jobs last month. Caixin said this is the 29th straight month of job losses. Sources have told Reuters that China is expecting to lay off as many as six million state workers over the next three years to remove bloated industrial capacity.
This could have a serious negative impact on the domestic consumption the government is trying to move the economy to.
Adding to the positive mood, China’s services sector saw strong expansion.
The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 53.8 in March from the previous month’s 52.7.