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China Manufacturing Activity Growth Slips in March: Caixin Survey

By Fran Wang

(Beijing) — Manufacturing activity in China expanded at a weaker pace in March as new export orders increased at the slowest rate in three months, an industry survey sponsored by Caixin showed Saturday.

The Caixin China General Manufacturing Purchasing Managers’ Index (PMI) — closely watched by investors as one of the first available indicators every month that reflects the strength of the Chinese economy — fell to 51.2 last month from 51.7 in February.

The survey, compiled by information and data analytics provider IHS Markit, is based on figures collected from more than 500 manufacturing companies across the country. A reading above 50 indicates expansion, while a number below 50 points to contraction.

The pullback in March’s manufacturing PMI may temper optimism over the pickup in economic growth that followed better-than-expected data over the first two months of the year.

Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, a subsidiary of Caixin Insight Group, said in a statement, “Overall, Chinese manufacturing continues to improve, but signs of weakening have started to emerge ahead of the second quarter and downward pressure may increase further.”

Expansion in both output and new business decelerated in March from February, with the subindex of new export orders rising at its slowest pace since December, the survey showed.

Reflecting caution among companies over the business outlook, stocks of purchased goods declined from the previous month into contractional territory even though inventories of finished goods shrank for the third straight month to the lowest reading in 10 months, the survey showed.

Manufacturers continued to shed jobs in March for the 41st month in a row, although the subindex of employment was still close to February’s marginal decline.

Economy Gains Momentum

Input costs continued to increase at a much faster rate than output prices. Although that may have benefited companies involved in so-called upstream activities at the beginning of the supply chain, such as raw material processing or refining, it likely further squeezed the profitability of companies in “downstream businesses,” where materials are turned into final products.

The Chinese economy gained momentum in the last three months of 2016, with official data showing gross domestic product (GDP) increasing at a stronger-than-expected pace of 6.8% in the fourth quarter, the first acceleration in eight quarters, as private investment and real-estate development picked up.

Stronger activity data in the first two months of 2017 has prompted some analysts to raise their GDP growth forecasts for this year. At least six foreign investment banks and economic research firms increased their estimates in March: UBS AG revised its full-year GDP projection to 6.7% from 6.4%, while Societe Generale adjusted its estimate to 6.6% from 6.3% and NatWest Markets upped its forecast to 6.8% from 6.5%. 

Nevertheless, many economists still expect growth to lose steam in the second half of this year due to the impact of government curbs on property purchases to cool surging prices. Authorities have imposed increasingly stringent measures to crack down on speculation and deflate bubbles that have appeared in property markets in many major cities. More than 30 local governments have rolled out measures to cool down the buying frenzy, including higher down-payment requirements and increased mortgage rates.

Beijing city also imposed more draconian restrictions on families buying multiple apartments to prevent individuals from taking action, such as getting divorced, to evade the controls.

The official PMI for the manufacturing sector, released by the National Bureau of Statistics (NBS) on Friday, was up 0.2 points from the previous month to 51.8 in March on a pickup in the growth of production and demand. It marked the strongest reading since April 2012, when the figure stood at 53.3, NBS data showed.

The Caixin PMI focuses more on light industry, while heavy industry takes a larger share in the NBS survey. The geographic distributions of companies covered in the two polls are also different.

This report has been corrected to state that the economic growth rate in the fourth quarter of 2016 was the first acceleration in eight quarters, not 10, due to the latest government revision of historical data.

Contact reporter Fran Wang (fangwang@caixin.com)

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