China's manufacturing picks up after holiday dip: HSBC PMI

BEIJING: Growth in China’s vast manufacturing sector picked up in March after a holiday dip, a preliminary survey of factory managers showed on Thursday, pointing towards solid but not spectacular first-quarter growth in the world’s second-largest economy.

The HSBC Purchasing Managers’ Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.

The pullback in February had raised concerns in financial markets that China’s recovery was losing steam. Indeed, official data earlier in March suggested the economy had started 2013 with only tepid growth after a burst of momentum in the fourth quarter.

[caption id=“attachment_669602” align=“alignleft” width=“380”] The perk-up in March comes after the long Lunar New Year holiday that closed most of China’s factories for at least two weeks in February. Reuters[/caption]

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“Current readings around the 50 points level seem to us to be consistent with GDP growth close to 8 percent year-on-year, and investors should not expect numbers close to the 55 points readings from the past when GDP growth was firmer,” wrote Dariusz Kowalczyk of Credit Agricole-CIB in Hong Kong.

“We are sanguine about China beating its GDP growth target.”

The perk-up in March comes after the long Lunar New Year holiday that closed most of China’s factories for at least two weeks in February. The holiday falls in either January or February, distorting underlying trends early in the year.

A sub-index measuring factory output rose in March to 52.8, recovering from a dip in February, HSBC said.

The March reading “implies that the Chinese economy is still on track for gradual growth recovery. Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative in a bid to sustain growth recovery,” wrote HSBC’s China economist Qu Hongbin.

A result above 50 means the pace of growth is accelerating.

Sub-indexes tracking new orders and new export orders both showed the pace of growth accelerating, indicating that manufacturing output should be supported in the near future.

MODEST RECOVERY

Other sub-indexes also pointed to an economy humming along but unlikely to deliver the blistering pace of growth seen in previous years.

Sub-indexes measuring both input and output prices fell, indicating overcapacity upstream and soft demand. That’s in line with over a year of falling producer prices, although official data has shown some signs that the decline is bottoming out. An employment sub-index also softened.

China’s export sector was badly hit in 2012 by a slump in demand from Europe and Japan.

In the first two months of 2013 combined, Taiwanese data showed orders from mainland China growing by a cool 1 percent year-on-year. That primarily reflects demand for electronics components that would be assembled in Chinese factories and ultimately exported elsewhere.

SLOWER GROWTH

Hong Kong and China stocks erased marginal early losses to move higher after the flash PMI data while the MSCI Asia ex-Japan share index rose about 0.2 percent. The Australian dollar also firmed marginally against the U.S. dollar.

As China’s economy matures, its pace of growth is expected to slow to a more sustainable footing – an expectation reflected in the nation’s 7.5 percent GDP growth target for 2013 released at the annual legislative session this month.

Reuters