Mixed signals from China's factories in March

Sun Apr 1, 2012 10:27am EDT
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By Koh Gui Qing and Benjamin Kang Lim

BEIJING (Reuters) - China's big factories were surprisingly busy in March as a stream of new orders lifted activity to an 11-month high, but credit-constrained smaller manufacturers struggled, suggesting that the economy is still losing steam.

The pickup in production at large factories was attributed to an expected bump as winter ends, and economists cautioned not to read too much into the stronger-than-expected figure.

That left intact a view that China's economy, while not crashing, likely suffered its worst quarter in three years between January and March, and requires at least some monetary policy easing this year to ensure the cool down stays mild.

Still, hopes for a turnaround were kept alive on Sunday when the official Purchasing Managers' Index (PMI) that highlights large factories jumped to an 11-month high of 53.1 in March, up from February's 51 comfortably beating forecasts of 50.5.

The number will likely cheer financial markets on Monday by dispelling talk that China is sliding towards a "hard landing", although Nomura economist Zhang Zhiwei said the figure is not as impressive after accounting for seasonal changes.

"I don't think the economy has improved a lot," he said. "If you take out the seasonality factor, this year's jump is less than the historical average. From that perspective, it's not a very strong signal."


Data between 2005 and 2010 showed the PMI climbing at least 3 points each year in March from February, a trend Zhang attributed to factories revving up production when winter ends.   Continued...

Labourers work at a garment factory in Huaibei, Anhui province March 23, 2012. REUTERS/Stringer