China March of­fi­cial fac­tory PMI: ac­tiv­ity seen con­tract­ing at slower pace

The Pak Banker - - MARKETS/SPORTS -

Ac­tiv­ity in China's man­u­fac­tur­ing sec­tor likely shrank for an eight straight month in March, but at a slower pace than in Fe­bru­ary as a re­viv­ing prop­erty mar­ket gave a much-needed boost to sales of steel and other con­struc­tion ma­te­ri­als, econ­o­mists said. The of­fi­cial man­u­fac­tur­ing Pur­chas­ing Man­agers' Index (PMI) is ex­pected to rise to 49.3 in March from 49.0 a month ear­lier, ac­cord­ing to a me­dian forecast of 32 econ­o­mists in a Reuters poll. Fe­bru­ary's read­ing was the weak­est since Novem­ber 2011.

Al­though the forecast rise im­plies a slower rate of shrink­age, it is still be­low the 50.0 mark which sep­a­rates ex­pan­sion from con­trac­tion.

China's fac­tory sec­tor has been in an pro­longed slow­down, weighed down by weak global de­mand for the coun­try's ex­ports and over­ca­pac­ity in key sec­tors such steel and ba­sic ma­te­ri­als.

Dong­bei Spe­cial Steel Group Co Ltd, an un­listed steel man­u­fac­turer in north­east China, be­came the lat­est ca­su­alty of the sup­ply glut and weak de­mand this week. It missed a pay­ment on an 800 mil­lion yuan ($123 mil­lion) short-term note which ma­tured over the week­end, the Shang­hai Clear­ing House said in a state­ment on its web­site on Tues­day.

None­the­less, signs of a nascent turn­around in the con­struc­tion sec­tor, driven by strong home sales and bub­bly prices in big cities such as Bei­jing, have re­cently given some sup­port to steel and other em­bat­tled heavy in­dus­tries.

The Na­tional Bureau of Sta­tis­tics' (NBS) in­dus­trial sur­vey for Jan­uary and Fe­bru­ary showed in­dus­trial prof­its grow­ing 4.8 per­cent from a year ear­lier, reversing seven straight months of de­cline.

While an NBS of­fi­cial said that the re­turn to growth was partly due to a low base in the same pe­riod last year, an­a­lysts said that the real estate re­cov­ery was also a fac­tor.

"The re­cov­ery in prop­erty in­vest­ment has helped in­dus­trial prof­its re­turn to pos­i­tive growth," Zhang Wen­lang, an an­a­lyst at CITIC Se­cu­ri­ties, wrote in a note.

"Look­ing for­ward, in­dus­trial prof­its are likely to grow this year thanks to im­proved house­hold con­sump­tion, a re­cov­ery in prop­erty in­vest­ment and a halt in the slump in com­mod­ity prices."

Some an­a­lysts also thought an eas­ing of con­cerns over cap­i­tal out­flows and the di­rec­tion of China's for­eign ex­change pol­icy might also have played a role in re­viv­ing busi­ness con­fi­dence.

"We think some of the Jan­uaryFe­bru­ary strength (in prof­its) was due to the re­lease of pent-up de­mand from the sec­ond half of last year," Tim Con­don, chief Asia econ­o­mist at ING Bank in Sin­ga­pore, said in a re­search note.

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