China factory activity grows fastest in nearly 5 years
BEIJING: Activity in China’s manufacturing sector unexpectedly expanded at the fastest pace in nearly 5 years in March, adding to evidence that the world’s second-largest economy has gained momentum early this year as construction booms.
But while factory output accelerated and new orders from home and abroad improved, economists are increasingly questioning how long China’s solid growth can be sustained.
Over a dozen cities have announced fresh measures in March to cool the overheated property market, while the export outlook is threatened by US President Donald Trump’s protectionist rhetoric.
For now, though, China’s factories appear to have shifted into higher gear, encouraged by the strongest profit growth in six years.
China’s official Purchasing Managers’ Index (PMI) rose to 51.8 in March from the previous month’s 51.6, data showed on Friday.
That was the strongest reading since April 2012 and well above the 50-point mark that separates growth from contraction on a monthly basis. Economists had expected 51.6.
Manufacturers also stopped shedding jobs in March for the first time in nearly five years as profitability improved. A prolonged slump in the sector and Beijing’s recent campaign to cut excess capacity in “smokestack” industries such as steel have put millions out of work.
In an encouraging sign that China’s economic growth is also becoming more balanced and broad based, activity in the services sector accelerated last month. The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 55.1, the highest since May 2014, a separate survey showed.
The March activity readings and a raft of upbeat data for January and February point to solid growth early in 2017. China’s economy likely expanded 6.8 per cent in the first quarter from a year earlier, in line with the previous quarter, said Zhang Yiping, an economist at Merchants Securities. China will release the firstquarter data on April 17.
Analysts polled by Reuters in January had expected growth would start to cool this quarter, and even the government has set a less aggressive full-year growth target of 6.5 per cent.
China’s better-than-expected performance so far may be largely due to a surprise rebound in home sales and strong government infrastructure investment, which have added fresh impetus to a months-long construction boom that has lifted demand for materials from cement to steel.
Factory output accelerated in March, with the sub-index rising to 54.2 from 53.7 in February. Highlighting the strength of the building boom, a measure of the construction industry stood at a robust 60.5, compared to 60.1 in February.
Total new orders — which cover domestic and export demand — also showed improvement, rising to 53.3 from February’s 53. But economists continue to have worries.
Apart from additional government curbs on property purchases, the central bank has embarked on cautious policy tightening to rein in the risks from a rapid build-up in debt.
It has raised money market and short-and medium-term interest rates on special loans several times already this year.
“Today’s PMI readings suggest that China’s economy continued to perform well in March, though we doubt the current strength will be sustained for much longer,” Capital Economics said in a note.
“The correction in the property market still has much further to run which, in combination with policy tightening, will drive a slowdown in investment and industrial activity during the coming quarters.”