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China Factory Gauge Firms as Stimulus Stabilizes Economy

Bloomberg News
May 1, 2016 — 11:01 AM AESTUpdated on May 1, 2016 — 1:29 PM AEST

• April manufacturing PMI at 50.1, non-manufacturing PMI at 53.5
• `This is a managed stabilization,' says Commerzbank's Zhou

China’s official factory gauge showed the nation’s economic rebound stabilized in April as a property recovery and credit surge helped to revive the nation’s old growth engines.

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

The data suggests a recovery in factory, investment and retail data in March wasn’t just a post-lunar new year holiday blip. The firm reading in April adds to the case for restraint in any additional stimulus to avoid fueling housing prices or flooding overcapacity sectors with cheap credit that keeps zombie enterprises alive.



“This is a managed stabilization,” said Zhou Hao, a Singapore-based economist at Commerzbank AG. “The Chinese government only rolls out some short-term stimulus when the data are 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 April and follow private data that suggested the recovery was gathering pace last month.


“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 pickups 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 percent through the third quarter, before cutting it to 4.1 percent in the fourth.
Expansion ‘Continues’

“As investment recovered, the property market turned around and the infrastructure construction expedited, the expansion of the manufacturing sector continues,” the National Bureau of Statistics said in a statement released with the data. The barometer of new orders was 51, indicating that a rebound in demand persists, according to the NBS.

Challenges still remain at factories. The employment gauge of the manufacturing PMI slipped, indicating factories are cutting number of workers, while sub-indexes of new exports and imports dropped. “China still faces relatively heavy downward pressure,” the NBS said.

The new engines of China’s economy are faring better as social media, movie theaters, karaoke bars and art galleries shrug off the nation’s slowdown. First-quarter revenue from cultural industry companies rose 8.6 percent from a year earlier to 1.67 trillion yuan ($258 billion), the statistics office said Friday.



The non-manufacturing index indicates that the growth pace of the services sector also slowed in April while construction activities picked up, the NBS said.

As overall growth slows, some provinces are feeling the pinch hardest, with those in the industrial northeast faring worst. In Liaoning province, the economy contracted in the first quarter, a rare decline for a Chinese region.