Things are suddenly looking a lot brighter for China's manufacturing sector

Guang Niu/Getty Images
  • Activity levels across China’s manufacturing sector improved for the first time in four months in March.
  • The pace of improvement was also the steepest since July 2018, albeit it was still marginal.
  • Both new orders and new export orders rose from a month earlier, indicating firmer demand from both home and abroad.
  • Firms added staff for the first time in over five years. Optimism towards the year ahead also rose to the highest level in 10 months.

Things are suddenly looking a lot brighter for China’s manufacturing sector.

Following news that activity levels improved for the first time in four months during March, according to data released by the Chinese government over the weekend, the separate Caixin-IHS Market China manufacturing PMI has confirmed that result today, lifting to 50.8 after seasonal adjustments.

Like the government’s manufacturing PMI, that was a noticeable improvement from the 49.9 level reported in February. It was also the highest level since July 2018.

IHS Markit

“China’s manufacturing sector finished the opening quarter of 2019 on a positive note, with operating conditions improving for the first time since last November,” IHS Markit said.

“Firms signalled slightly quicker rises in output and overall new work, while employment increased for the first time in over five years.”

In a good sign for both domestic and international demand, as well as the outlook for broader activity levels in the months ahead, survey respondents noted that new orders increased both at home and abroad.

“Manufacturing production in China rose for the second month in a row in March,” IHS Markit said.

“Though modest… the upturn was supported by a stronger, albeit still relatively muted, rise in total new work. Furthermore, new export orders rose slightly after a fall in February.”

With production, hiring and new orders all lifting from February, optimism towards the year ahead also improved to the highest level in 10 months.

“A number of firms linked positive forecasts to expectations of further improvements to overall market conditions,” IHS Markit said.

Zhengsheng Zhong, Director of Macroeconomic Analysis at the Caixin Insight Group, said the March report indicates “a notable improvement in the manufacturing industry”.

“The subindex for new orders climbed to its highest level in four months, and the gauge for new export orders returned to expansionary territory, showing that both domestic and external demand rebounded moderately.”

The improvement was put down to “a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-US trade talks”, according to Zhong.

The Caixin-IHS Markit PMI measures perceived changes in activity levels across China’s manufacturing sector from one month to the next.

Anything above 50 signals that activity levels improved while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

Unlike the government’s manufacturing PMI that includes firms of all sizes, including those that are state-owned and operated, many see the Caixin-IHS Markit PMI as a better gauge of activity levels at small and medium-sized firms from China’s private sector.

While both PMIs improved noticeably last month, the impact of Lunar New Year holidays in China carries the potential to distort economic data released in the March quarter, meaning some caution is warranted when interpreting the latest results.

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