Chinese growth gathers pace in March

Manufacturing sector improves after Lunar New Year holiday distorts February figures

The HSBC Purchasing Managers' Index for March rose to 51.7 in March from 50.4 in February. REUTERS/Kim Kyung-Hoon

The HSBC Purchasing Managers' Index for March rose to 51.7 in March from 50.4 in February. REUTERS/Kim Kyung-Hoon


Growth in China's vast manufacturing sector picked up in March after a holiday dip, a preliminary survey of factory managers showed on today, pointing towards solid but not spectacular first-quarter growth in the world's second-largest economy.

The HSBC Purchasing Managers' Index for March revived to 51.7 in March from 50.4 in February, but remained below a two-year high of 52.3 reached at the beginning of the year.

The pullback in February had raised concerns in financial markets that China's recovery was losing steam. Indeed, official data earlier in March suggested the economy had started 2013 with only tepid growth after a burst in the fourth quarter.

Economists' opinions were mixed on how much recovery momentum would be carried into the second quarter, with some pointing to weak commodity demand while others took comfort in the stronger March showing.

The perk-up in March comes after the long Lunar New Year holiday that closed most of China's factories for at least two weeks in February. The holiday falls in either January or February, distorting underlying trends early in the year.

A sub-index measuring factory output rose in March to 52.8, recovering from a dip in February, HSBC said.

Sub-indexes tracking new orders and new export orders both showed the pace of growth accelerating, indicating that manufacturing output should be supported in the near future.

The March reading "implies that the Chinese economy is still on track for gradual growth recovery. Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative in a bid to sustain growth recovery," wrote HSBC's China economist Qu Hongbin.

A reading above 50 indicates the pace of activity increased from the previous month.

That could belie weak January and February electricity output figures, cited by Capital Economics economists Mark Williams and Qinwei Wang, who conclude that first quarter growth is likely to be slower than the fourth quarter's 7.9 percent.

They also looked at a drop in domestic freight volumes, but conceded construction activity and port volumes have improved.

Taken together, the signs are that "economic growth is slowing in the current quarter, much sooner than most had expected," Williams and Wang concluded.

"The latest data suggest that growth in (quarter-on-quarter) terms has dropped back to the pace seen in mid-2012, before the policy-driven rebound took effect."

Asia's top companies, especially those in the export engines of China, Japan and South Korea, are less optimistic about their business outlooks as global demand remains sluggish, the latest quarterly Thomson Reuters/INSEAD Asia Business Sentiment Survey showed this week.