China Manufacturing Rebounds in Sustained-Recovery Sign: Economy

China’s manufacturing is expanding at a faster-than-forecast pace this month as production and orders pick up, helping new Premier Li Keqiang sustain a recovery in the world’s second-biggest economy.

The preliminary reading of a Purchasing Managers’ Index was 51.7 in March, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 50.4 final reading for February, when factories closed for the weeklong Lunar New Year holiday, and January’s 52.3. A reading above 50 indicates expansion.

The report may reduce concern that a rebound is losing steam after factory output and retail sales rose less than forecast in the past two months, in the weakest start to a year since 2009. Commerce Ministry data showed March 19 that China’s foreign direct investment rose for the first time in nine months in February, a sign confidence in the economy is improving.

“The growth recovery is not over, although it is not a very strong one,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “Now it is clear that the weak reading in February was indeed a result” of the holiday.

The median estimate was 50.8 for today’s figure in a Bloomberg News survey of 11 analysts. The benchmark Shanghai Composite Index of stocks reversed losses to rise 0.3 percent as of 11:01 a.m. local time, poised for a third straight gain.

HSBC and Markit will report the final March reading on April 1, the same day that a separate, government-backed purchasing managers’ index will be released. The official manufacturing gauge fell to 50.1 in February, a five-month low.

Flash Index

The HSBC gauge’s preliminary reading, called the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of more than 420 companies. The data for this month’s reading were collected from March 12-19.

“The Chinese economy is still on track” for a “gradual growth recovery,” Qu Hongbin, chief China economist for HSBC in Hong Kong, said in a statement. “Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative.”

Li, in his first press conference after succeeding Wen Jiabao last week, said March 17 that average annual growth of 7.5 percent is needed to achieve targets the ruling Communist Party set for 2020 such as doubling per capita income.

China’s gross domestic product expanded 7.9 percent in the final three months of 2012 from a year earlier, up from a 7.4 percent pace in the previous quarter and ending a seven-quarter slowdown. Growth may accelerate to 8.1 percent this quarter, according to the median estimate of 32 analysts surveyed by Bloomberg News this month. Economic growth was 7.8 percent in 2012, the slowest in 13 years.

Weaker Pace

“China is still on track for a recovery but the pace is weaker than we previously expected,” Bank of America Corp. economists led by Lu Ting wrote in a March 19 report, as they lowered their 2013 growth forecast to 8 percent from 8.1 percent, citing weak industrial production, tighter property-market curbs and a crackdown on extravagant spending by officials.

Lu said in a note today that manufacturing this month is still “relatively weak” as suggested by indicators including daily power output. The Lunar New Year holiday also creates “significant distortions” with PMI readings, said Lu, who’s based in Hong Kong.

Separately today, Japan posted its eighth straight trade deficit, marking the longest run in three decades and underscoring challenges for Bank of Japan Governor Haruhiko Kuroda in reviving the world’s third-biggest economy. Exports dropped 2.9 percent from a year earlier, while imports rose 11.9 percent, leaving a trade shortfall of 777.5 billion yen ($8.1 billion).

Earthquake Construction

Elsewhere in the Asia-Pacific region, New Zealand’s economy grew 1.5 percent last quarter, the fastest pace in three years, boosted by the reconstruction of earthquake-damaged Christchurch city. In Europe, Ireland may report gross domestic product expanded 0.2 percent in the fourth quarter from the previous period, based on the median estimate of nine economists surveyed by Bloomberg News.

Markit will also release preliminary purchasing managers’ indexes for the euro area, France and Germany. The U.S. will announce jobless claims for the week ended March 16.

China’s factory production expanded 9.9 percent in the first two months of 2013 from a year earlier, the weakest for a January-February period since 2009, statistics bureau data showed on March 9. Retail sales increased 12.3 percent in the first two months, the smallest gain for the period since 2004.

Baoshan Iron & Steel Co., China’s biggest listed steel mill, raised prices for hot-rolled and cold-rolled steel products for April delivery by 150 yuan ($24) a ton, the company said March 8, the sixth straight month that Baoshan has raised prices.

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