Written by Yuhua Zhang, GEI Associate
In March, China Manufacturing PMI surprisingly rose to 50.1, which is higher than a Reuters forecast of 49.8, and goes back to expansion range (above 50%) after two consecutive months’ contraction. However, many analysts still consider that China manufacturing industry still has downside pressure that will prevent further growth.
There are three main reasons which lead to the slight growth of China manufacturing PMI last month.
- First, most of factories recovered operation after the Chinese New Year festival and production activities accelerated during March, which is one of the main factors promoting the recovery in PMI.
- Second, under the newly effective reform policies to stablize GDP growth rate and adjust industrial structure, more and more enterprises have a more optimistic attitude about market expectations for the future, which activates their enthusiasm in production and operation.
- Third, during the last month, the price of some construction steel products recovered, and the decline momentum of oil and some other staple commodities’ prices slowed down. These improvements in the market environment brought positive effects on enterprises’ production and operation.
However, although PMI recovered slightly in March, it is still lower than the same level a year ago. Added to that, there still exists downside pressure in China’s manufacturing industry because both domestic and foreign demands remain weak.
In the meanwhile, China non-manufacturing PMI declined from 53.9 to 53.7 in March. Although it shows a slight decline, the index is still smooth and in stable expansion range. The seasonal fall of service industry is the main reason of the decline. After Chinese spring festival, demands of service which is close related to residents’ daily consumption (i.e. catering, air transportation, express, etc) experiences obvious decline.
Nevertheless, some other non-manufacturing industries such as telecom and internet software still maintain a quite high growth rate. Particularly, with the accelerating boost of infrastructure programs, construction enterprises generally are speeding up production activities to meet higher market demand. Therefore, non-manufacturing PMI remains in an overall stable growth level.
With the service sector a growing fraction of the Chinese economy, it will serve to soften the impact of the manufacturing slowdown.
