April 1, 2019 / 4:01 AM / in 24 days

China manufacturing returns to growth in March: Caixin PMI

BEIJING (Reuters) - China’s manufacturing sector unexpectedly returned to growth for the first time in four months in March, in a sign that government stimulus measures may be slowly gaining traction, a private business survey showed on Monday.

FILE PHOTO: Employees work on a mobile phone production line at Huawei's factory campus in Dongguan, Guangdong province, China March 25, 2019. Picture taken March 25, 2019. REUTERS/Tyrone Siu/File Photo

But growth in new domestic and exports orders was marginal, suggesting the economy will remain under pressure in coming months and will likely require more policy support before it can convincingly stabilise.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) expanded at the strongest pace in eight months in March, rising to 50.8 from 49.9 in February, above the neutral 50-mark dividing expansion from contraction on a monthly basis and the highest level seen since July 2018.

Economists polled by Reuters had forecast the reading for March would stay unchanged at 49.9. The surprise expansion seen in the Caixin survey echoed that seen in the official PMI released on Sunday, which also showed factory activity defying expectations for another contraction in March.

“With a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-U.S. trade talks, the situation across the manufacturing sector recovered in March,” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a commentary accompanying the data release.

China has made proposals in talks with the United States on a range of issues that go further than it has before, including on forced technology transfer, as the two sides work to overcome obstacles to a deal to end their protracted trade war, U.S. officials told Reuters on Wednesday.

But sources close to the talks have stressed that a deal is by no means certain, and tit-for-tat tariffs on both sides have remained in place.

Zhang noted the employment situation improved significantly in March, a trend that may ease some government and investor concerns after the unemployment rate in urban areas for February rose to the highest since early 2017.

Caixin’s findings showed factories added headcount in March for the first time in 65 months, arresting a relentless spell of job shedding since October 2013. Some firms were hiring to support higher production and new business development, the release said.

New orders — an indicator of future activity — increased for the second month running, though the pace of growth was marginal. Output also grew for the second straight month.

New export orders expanded after contracting in the previous month. Though the rate of increase was fractional, Caixin said the broad trend appeared to have steadied in the first quarter.

Chinese manufacturers also signaled an improvement in pricing power in March, which could ease pressure on profit margins. Output charges edged up into expansionary territory and outpaced growth in input prices, reflecting reduced pressure from raw material costs.

“The producer price index might have risen faster year-on-year in March, and increased month-on-month, compared with a monthly decline in February,” Zhong added.

Optimism among businesses edged up to a 10-month high partly on expectations that market conditions, both at home and abroad, will improve, the statement said.

But purchasing activity declined for the third straight month, suggesting some firms remain cautious.

Economists at Nomura have forecast that China’s industrial production growth will moderate again in April and May after a brief rebound in March mainly due to last year’s low base.

Reporting by Yawen Chen and Ryan Woo; Editing by Kim Coghill and Sam Holmes

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