China Manufacturing Growth Accelerates, PMI Shows
China’s manufacturing expanded at the fastest pace in a year, reducing pressure on policy makers to open the taps on credit in the world’s second-largest economy.
The Purchasing Managers’ Index rose to 53.3 in April from 53.1 in March, China’s statistics bureau and logistics federation said in a statement yesterday. That’s the fifth straight reading above the 50 level dividing expansion from contraction and compares with the 53.6 median forecast in a Bloomberg News survey of 27 economists.
The data signal China may be strengthening from the slowest pace of growth in almost three years, reached last quarter. At issue for Premier Wen Jiabao is whether to extend a two-month pause in lowering banks’ required reserve ratios, as he seeks to rein in property and consumer prices without sending the economy into a so-called hard landing.
“The need for aggressive policy easing is limited given the government’s desire to slow growth and the upside inflation risks,” said Chang Jian, a Hong Kong-based economist with Barclays Capital. “Fine-tuning measures such as easing credit, support for first-home buyers and expansionary fiscal policy to support infrastructure will gradually feed through, so the slowdown in growth will bottom out this quarter.”
Markets in China and Hong Kong were closed yesterday for a public holiday.
A separate PMI compiled by HSBC Holdings Plc and Markit Economics showed last week that manufacturing may have contracted for a sixth month in April, according to preliminary results. The final reading, which has a different sample and methodology, is due today.
The official index compiled by the logistics federation and statistics bureau is based on responses from managers at more than 820 companies in 28 industries, while HSBC’s covers more than 420 companies and is weighted toward smaller businesses.
The federation’s “large and medium-sized companies” sub- index was 53.7 for April while its “small companies” gauge was 49.1, the same as HSBC’s preliminary reading.
China’s gross domestic product expanded 8.1 percent in the first three months of 2012 from a year earlier, the fifth straight quarterly deceleration, as Wen cracked down on property speculation and exports were hurt by Europe’s debt crisis.
Wen has said the government will preemptively adjust and fine-tune policy in a “timely and appropriate” manner. China has reduced banks’ reserve requirements twice since November to boost liquidity and spur loan growth.
At the same time, authorities have refrained from cutting interest rates amid inflation concerns, and have paused since mid-February in lowering the reserve ratio.
A measure of output in April’s official PMI rose to 57.2 from 55.2 the previous month. A gauge of new orders increased at a slower pace while export orders gained at a faster rate, the data showed.
The index has reached an “above historical average” and the export orders gauge has rebounded for four months in a row, Yu Song, a Beijing-based economist at Goldman Sachs Group Inc. said, suggesting a “modest increase” in industrial output growth on a year-on-year basis.
“We are on the upturn of a mini-cycle,” said Lu Ting, a Hong Kong-based economist with Bank of America Corp., who estimates second-quarter economic growth could accelerate to 8.5 percent from a year earlier.
In contrast, Ding Shuang, a Hong Kong-based economist at Citigroup Inc., said the decline in new orders indicates domestic demand is weakening relative to external demand and that expansion may slow to 7.9 percent this quarter.
“Continued policy support, including expansionary fiscal policy, monetary accommodation including cuts in the reserve ratio, and selected easing of property measures, is needed to generate a rebound in the second half,” Ding said.
Lack of seasonal adjustment may have accounted for the rise in April’s official PMI, according to economists at Societe Generale SA and Mirae Asset Securities (HK) Ltd.
“The peak reading in a year usually occurs in April so the actual strength of China’s manufacturing sector was probably not as resilient as indicated,” said Yao Wei, a Hong Kong-based economist with Societe Generale, who accurately forecast the number.
Joy Yang at Mirae Asset in Hong Kong described the increase as “quite shallow” and said more policy easing should be expected around the middle of the year.
“There’s a big chance that the second quarter is going to be weaker than the first quarter,” she said in an interview with Bloomberg Television in Hong Kong yesterday, referring to the outlook for economic growth. “We see that the external environment has sort of stabilized but we don’t see drivers in growth yet.”
Switzerland’s ABB Ltd., the world’s largest supplier of power grids, said on April 25 that it sees no immediate recovery in Chinese demand in construction and transportation after first-quarter Asian orders declined.
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