BEIJING: Factory activity in China unexpectedly grew for the first time in four months in March, an official survey showed on Sunday, suggesting government stimulus measures may be starting to take hold in the world’s second largest economy.
If sustained, the improvement in business conditions could indicate that manufacturing is on a path to recovery, easing fears that China could slip into a sharper economic downturn.
But analysts remained cautious, citing seasonal distortions due to the long lunar New Year break in February. They said real investment and consumer demand remained soft and pushed up inventories, potentially adding pressure to the sector.
The official Purchasing Managers’ Index (PMI) rose to 50.5 in March from February’s three-year low of 49.2, marking the first expansion in four months, according to data released by the National Bureau of Statistics (NBS). The 50-mark separates growth from contraction on a monthly basis.
Analysts surveyed had forecast the manufacturing gauge would pick up slightly to 49.5, as factories ramped up production after the Lunar New Year holidays and rebuilt inventories ahead of a seasonal pickup in activity in spring.
Factory output grew at its fastest pace in six months in March, reversing a brief contraction in the previous month. It rose to 52.7 from February’s 49.5, the highest level seen since September 2018.
Total new orders also grew at a quicker pace, driving up factory-gate prices to a five-month high of 51.4, ending four months of contraction.
“The jump will likely give a big boost to stock markets and could delay a cut in the reserve requirement ratio (RRR),” said Ting Lu, chief China economist at Nomura. China has announced five RRR cuts in the past year to free up more cash for banks to boost lending to private firms, and further cuts are widely expected. Ting said there is limited room for manufacturing PMI to rise further and the chance for another dip is “not small”. — Reuters