China factory growth accelerates more than expected in March
borrowing, capital expenditure and hiring, a survey from the China Beige Book showed on Wednesday.
Production increased further after winter smog controls expired on March 15 in many areas. A separate PMI on the steel sector rose to 50.6 in March from 49.5 in February, the China Logistics Information Centre (CLIC) said.
But the burst in output has pushed steel inventories to multi-year highs, sending prices sharply lower and reducing mills’ profit margins.
At the same time, growth in property sales and new construction starts appears to be slowing, and Beijing has hit the brakes on some local governments’ infrastructure spending due to concerns over high debt levels.
Those factors, along with rising borrowing costs, should weigh on activity eventually, with economists sticking to forecasts that China’s growth will cool to around 6.5 percent by the end of the year.
Boosted by government infrastructure spending, a resilient housing market and unexpected strength in exports, China’s manufacturing and industrial firms helped the economy produce better-thanexpected growth of 6.9 percent in 2017.
A sister survey showed growth in China’s service sector also kicked up a notch in March, with the official nonmanufacturing Purchasing Managers’ Index (PMI) rising to 54.6 from 54.4.
A sub-reading for construction activity stood at 60.7 in March, up from 57.5 in February.
Chinese policymakers are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports. The services sector now accounts for over half of the economy, with rising wages giving Chinese consumers more spending clout.
China is aiming for economic growth of around 6.5 percent this year, the same target as in 2017, while pressing ahead with its campaign to reduce risks in the financial system, Premier Li Keqiang said earlier this month.
A composite PMI covering both the manufacturing and services activity rose to 54.0 in March, from February’s 52.9.