Factory activity in China picks up more steam
CHINA’S factory activity expanded faster than expected in February as domestic and export demand picked up, adding to signs that the global economy is regaining momentum even as fears grow of a surge in trade protectionism.
Growth in both output and orders accelerated last month, according to official and private factory surveys yesterday, giving the government more room to focus on tackling financial risks to the economy as debt continues to rise.
“This is the seventh consecutive month that China’s official manufacturing PMI (Purchasing Managers’ Index) stayed within expansionary territory, suggesting that industrial activity remains buoyant,” Zhou Hao, an emerging-markets economist at Commerzbank in Singapore, said.
Rate hike likely
Zhou said it was “very likely” that China’s central bank would raise short-term interest rates by a another 10 basis points this month – which would mark the third such move in as many months – as authorities grow more confident that the economy is on a steadier footing.
Facing growing risks from explosive growth in debt, China’s central bank has cautiously shifted its stance in recent months to a tightening bias after years of super-loose policy to stave off the risk of a hard landing for the world’s second-largest economy.
Policy sources have told Reuters that China’s leaders will accept a lower economic growth target of about 6.5 percent this year, and target a less aggressive expansion of the money supply, as the focus slowly shifts from growth to pushing reforms to contain debt and housing risks.
China’s industrial sector has benefited from a construction boom since the middle of last year that has spurred demand and prices for building materials, boosting profits.
The official PMI released yesterday rose to a three-month high of 51.6 in February, compared with 51.3 in January, and above the 50-point mark that separates growth from contraction on a monthly basis.
Output rose at a faster pace of 53.7, compared with 53.1 in January, while overall new order growth also picked up.
A private survey that focuses more on small and midsized firms offered similarly encouraging findings.
The Caixin/Markit Manufacturing PMI rose to 51.7, up from 51.0 in January.
New export orders grew at the fastest pace since September 2014.
Although the industrial sector continued to shed jobs in February, the pace eased to its slowest since March 2013.
Inflationary pressures also continued to rise sharply thanks largely to higher prices for building materials, but producers were able to pass some of the increased input costs on to consumers.
For now, China’s consumer inflation remains well within the central bank’s comfort zone, but expectations of upward pressure could keep the central bank on a gradual tightening path. – Reuters
51.6pts Official Purchasing Managers’ Index for February