China's brighter-than-expected industry indicators buoy recovery hopes
Official and private PMIs jump, but some warn of unresolved economic problems
TOKYO -- China's manufacturing activity in March expanded at the fastest pace in over a year, a widely watched private survey showed on Monday, adding to expectations that Asia's largest economy is on track for recovery.
The seasonally adjusted Caixin purchasing managers' index rose to 51.1 in March from 50.9 in February, marking the fifth straight month of expansion and the fastest pace of improvement since February 2023. A reading above 50 indicates expansion.
The survey came out a day after the National Bureau of Statistics' official purchasing managers' index rose to 50.8 for March, clearing the 50 mark for the first time in six months and beating expectations.
The improvement in the Caixin PMI "was driven by greater inflows of new work, including from abroad," which prompted Chinese manufacturers to increase production, said Wang Zhe, senior economist at Caixin Insight Group. The stronger indicators are prompting some analysts to suggest that the Chinese economy is bouncing back, even as policymakers wrestle with a deep slump in the property sector, which has weighed on the financial health of local governments and state-owned banks.
"The strong PMIs in March strengthen the case for a GDP upgrade," analysts at Citi wrote in a research note on Sunday. "The better-than-expected and broad-based sentiment recovery in manufacturing and [other] sectors confirmed that the overall economy is still on track for recovery."
Goldman Sachs noted that activity in both the services and construction sectors accelerated in March.
Before the release of the surveys, analysts at Nomura expected China's economy would grow 4.0% in 2024. In a research report, the analysts said that additional economic stimulus would be necessary to achieve the government's growth target of "around 5%."
Despite the positive signs, Wang at Caixin Insight Group stressed that many pitfalls remain.
"Downward economic pressures persist, employment remains subdued, prices remain low, and insufficient effective demand has not been fundamentally resolved, underscoring the need to further boost domestic and external demand," Wang said.
Zichun Huang, China economist at Capital Economics, observed in a note on Monday after the Caixin PMI announcement, "We think this recovery will continue in the near term but won't prove durable and that the economy will be weakening again by year-end."
Huang added, "Once policy support is scaled back, probably later this year, structural headwinds mean the economy is likely to slow again."
In morning trading on Monday, China's benchmark Shanghai Composite Index rose by more than 1%.