China factory rebound eases global outlook fears

An aerial view of Tianjin Port in China. The country's manufacturing purchasing managers' index in March rose to 50.5 from 49.2, backing up signs of recovery seen in the earliest data on the economy, which showed business confidence and stock markets
An aerial view of Tianjin Port in China. The country's manufacturing purchasing managers' index in March rose to 50.5 from 49.2, backing up signs of recovery seen in the earliest data on the economy, which showed business confidence and stock markets improving.PHOTO: BLOOMBERG

Last month's pick-up signals stabilisation, but new export orders are still contracting

BEIJING • China's first official economic gauge for March signalled a stabilisation in the world's second-largest economy, easing one of the biggest worries for the global outlook.

The manufacturing purchasing managers' index rose to 50.5 from 49.2, the biggest increase since 2012 and exceeding all estimates by economists. Both new orders and new export orders - leading sub-gauges that signal future activities - rose to the highest levels in six months.

That is good news for global investors, as China's weakening demand had weighed on sectors such as auto producers and commodity exporters worldwide. But with tariffs and uncertainty about whether a deal with the US will be signed weighing on trade and no sign of a rebound in domestic consumption yet, there is still a way to go.

"China's economy has improved, supporting a stabilisation in the global economy," said global chief economist Hua Changchun from Guotai Junan Securities. That stabilisation will lift the European and US economies, and may lead to a global asset price increase, he added.

Sunday's release backs up signs of recovery seen in the earliest data on the economy, which showed business confidence and stock markets improving amid policy support and progress in the China-US trade talks. The government is showing signs of optimism, with Premier Li Keqiang telling business people last week that the economy is doing better in the first quarter than expected.

Still, there is evidence for caution.

New export orders are still contracting even after the pick-up from the lowest level in a decade in February. Also, the rise in the March data may overstate the actual increase in activity, as the Chinese New Year holiday in February weighed down the data then, according to Mr Zhou Hao, an economist with Commerzbank in Singapore.

If data on South Korea's March exports due yesterday confirm a pick-up, the market will be further convinced that China's economy is turning around, Mr Zhou said. That will "marginally" lift concerns about a downturn in China and lower expectations in the short term for a reduction in the amount of money that banks must keep in reserve, he added.

Growth of the world's second-largest economy will slow further in the first quarter to 6.2 per cent from a year earlier and stabilise at that level throughout 2019, according to economists surveyed by Bloomberg.

The government has repeatedly vowed not to resort to "flood-like" stimulus and may pare back support measures if things do start looking better.

"Once the rebound is confirmed, the government will not use up its fiscal firepower," according to Mr Ding Shuang, chief China and North Asia economist at Standard Chartered Bank in Hong Kong.

According to him, the government is still concerned about local government debt risks and if the trade talks reach a deal, there will likely be a reduction in policy stimulus around mid-year.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 02, 2019, with the headline 'China factory rebound eases global outlook fears'. Print Edition | Subscribe