© Reuters. FILE PHOTO: Workers fabricate Orolay jackets at the company's factory complex in Jiaxing, Zhejiang
By Yawen Chen and Ryan Woo
BEIJING (Reuters) – Factory activity in China grew for the first time in four months in March Official poll revealed on Sunday, that state stimulus measures could begin.
If economic conditions persist, it may indicate that the ailing manufacturing sector is on the road to recovery, and fears that China may be heading more sharply for economic downturn.
However, many analysts remained cautious on growth prospects, pointing to seasonal distortions caused by the long New Year break in February. They argue that consumer real investment and demand remained weak and inventory levels were rising faster, which could put further pressure on the sector.
The PMI rose to 50.5 points in March from a three-year low in February According to the National Bureau of Statistics (NBS) on Sunday, 49.2 is the first expansion in four months , The 50th mark separates the growth from the monthly decline.
Analysts surveyed by Reuters had predicted that production levels would increase slightly to 49.5 as factories increased production after the New Year holidays and rebuilt inventories in anticipation of a seasonal build-up Spring.
Factory production grew at the fastest pace in six months in March and returned briefly in the previous month. It rose from 49.5 in February to 52.7, its highest level since September 201
Total order intake also increased faster, raising factory prices to a five-month high of 51.4, four months ahead long shrank.
"The jump is likely to boost the stock markets and could delay a reduction in the reserve requirement ratio (RRR)," said Ting Lu, chief economist of China at Nomura.
China announced five RRR cuts last year to provide banks with more money to boost lending to private companies, and further cuts are widely expected.
Ting said the manufacturing PMI can only grow to a limited extent The opportunity for another slump is "not slim."
"Although the manufacturing PMI in March may somewhat mitigate the pessimistic expectations of the economy, we believe the actual situation is not as optimistic as this indicator suggests." Lianxun Securities said in a statement ,
Export contracts contracted for the tenth consecutive month, suggesting that external demand remained sluggish and further cushioning could be required as tensions between governments increase. In China's trade-oriented neighbors, Japan, South Korea and Taiwan, there was more evidence of declining demand both in China and elsewhere.
"Construction starting earlier this year has resulted in strong domestic demand, but foreign demand remains weak and prospects for imports and exports are still not optimistic," Huatai Securities economists said ,
Washington and Beijing imposed compulsory tariffs remain as the negotiations continue to end a trade war that has disrupted billions of billions of goods between the world's two largest economies. It is unclear whether a mutually acceptable deal can be made.
US. President Donald Trump said on Friday the talks with China went very well, but added that he would accept nothing less than "a lot" after high-level trade officials had spent two days in Beijing debating.
China's Deputy Prime Minister Liu He will travel to Washington on April 3 for more talks.
SPECTER OF LAYOFFS
Chinese factories cut more staff in March, with the employment sub-index rising from 47.5 in February to 47.6.
Faced with rising labor costs and weaker sales, a growing number of foreign companies from automotive manufacturers and electronics manufacturers have decided to close their plants in China in recent months. The unemployment rate rose to 5.3 percent in February, approaching a two-year high.
Sony Corp. (T 🙂 closes its smartphone factory in Beijing and production will be discontinued at the end of the month, while Samsung Electronics (KS 🙂 was discontinued in one of its mobile phones in China last year.
The PMI survey found that small and medium-sized manufacturers are still performing worse than large, many state-controlled companies, although their activity has improved compared to the previous month. Politicians' efforts to allow affordable financing to the private sector are working gradually.
Policymakers have realized that the economy is under pressure. Multi-annual debt and pollution reduction campaigns have deterred new investment, while the US-China trade wars are affecting China's export sector and threatening even more job creation.
In response, Beijing plans more spending on roads, railways and ports. along with nearly 2 trillion yuan ($ 297.27 billion) in tax cuts to ease the pressure on corporate balance sheets.
The measures will take some time, say analysts who believe economic activity will not stabilize by the middle of the year. Wednesday's data showed a 14-percent decline in industrial profits, the sharpest drop since at least the end of 2011.
China's service sector, which accounts for more than half of the economy, grew in March as new orders grew faster , The official manufacturing PMI index rose from 54.3 to 54.8.
Construction activity returned to full swing in March. The under-reading for construction activity stood at 61.7 in March, compared to 59.2 in February.
(This story was rejected to correct the typo in paragraph 3)