China's PMI firm as stimulus takes hold

BEIJING • China's official factory gauge showed the nation's economic rebound stabilised last month as a property recovery and credit surge helped to revive its old growth engines.

The manufacturing purchasing managers' index (PMI) stood at 50.1 last month, the nation's statistics agency said yesterday, compared with 50.2 in March and a median estimate of 50.3 in a Bloomberg survey of economists. The non-manufacturing PMI was at 53.5, compared with 53.8 in March. Numbers above 50 indicate improving conditions.

The data suggests a recovery in factory, investment and retail data in March wasn't just a post-Chinese New Year blip. The firm reading last month adds to the case for restraint in any additional stimulus to avoid fuelling housing prices or flooding overcapacity sectors with cheap credit that keeps zombie firms alive.

"This is a managed stabilisation," said Zhou Hao, a Singapore-based economist at Commerzbank AG. "The Chinese government rolls out some short-term stimulus only when the data is at the worst. It doesn't want to see all the steel mills firing up again or the market's speculation momentum get too strong."

The PMI readings are the first official indicator for last month and follow private data suggesting the recovery was gathering pace.

"Resilience is substantially underpinned by a return to growth in construction and heavy industry," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note, citing pick-ups in steel and construction gauges.

"Once again, China's return to growth has come through a revival in lending and construction - at the expense of progress on deleveraging and re-balancing."

China had an across-the-board rebound in March as corporate profits jumped, and new credit, investment, industrial output and retail sales all beat economists' estimates.

Those stronger readings may keep the central bank on hold for a while as economists now see the People's Bank of China keeping the benchmark one-year lending rate at a record low 4.35 per cent through the third quarter, before cutting it to 4.1 per cent in the fourth.

The new engines of China's economy are faring better as social media, movie theatres, karaoke bars and art galleries shrug off the slowdown. First-quarter revenue from cultural industry firms rose 8.6 per cent from a year earlier to 1.67 trillion yuan (S$346 billion), the statistics office said last Friday.


A version of this article appeared in the print edition of The Straits Times on May 02, 2016, with the headline 'China's PMI firm as stimulus takes hold'. Print Edition | Subscribe