China Manufacturing Gauge Climbs to Highest in Almost Five Years

China’s official factory gauge climbed to the highest in almost five years, the latest evidence of increasing momentum in the world’s second-largest economy.

Key Points

• The manufacturing purchasing managers index increased to 51.8 in March, compared with economist estimates that it would match the November reading of 51.7
• The non-manufacturing PMI rose to a two-year high of 55.1 from 54.2 last month
• Numbers higher than 50 indicate improving conditions

Big Picture

The new strength follows a factory rebound since mid-2016, while industrial output and private investment also have picked up. Still, the brighter picture has been boosted by surging producer prices that may be close to peaking, and the government will have to deal with the hangover of the investment-driven growth.

Economist Takeaways

“Last year’s stimulus has done the trick and it’s increasingly looking like the growth uptick is broadening out beyond the initial impact of the stimulus, in particular into private sector services companies,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. “It’s consistent with policy makers continuing to tap the brakes.”

“This strength probably won’t last, ” Julian Evans-Pritchard, China economist at Capital Economics, wrote in a note. “The correction in the property market still has much further to run which, in combination with policy tightening, will drive a slowdown in investment and industrial activity during the coming quarters.”

“The first quarter is off to a good start,” said Wang Qiufeng, an analyst at China Chengxin International Credit Rating in Beijing. “The upbeat momentum may last through the first half of this year, as the government is pushing investment.”

“The fact that the real strength is with the non-manufacturing PMI suggests that there’s fundamentally a good story going on,” said James Laurenceson, deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “Manufacturing is where you’d expect to see the effects of stimulus showing up.”

The Details

• New orders increased to a nearly three-year high of 53.3 from 53, the National Bureau of Statistics said
• New export orders rose to 51, the highest in almost five years
• Input prices fell a third month, falling to 59.3 after hitting a five-year high in December. That suggests producer prices may be peaking at an eight-year high, said Raymond Yeung, chief greater China economist at Australia & New Zealand Banking Group Ltd.
• Stronger market demand, expanding high-technology activity, and improving conditions in traditional heavy industries all contributed to the stronger reading, NBS said
• Among gauges for firms, the reading for large enterprises was strongest at 53.3 while medium-sized companies stood at 50.4 and small firms at 48.6