China manufacturing sector upbeat on growth

China’s manufacturing expanded at a faster pace in March, suggesting resilience of the economy amid concerns that monetary tightening measures would result in an economic slowdown.

The Purchasing Managers Index (PMI) of China’s manufacturing sector rose to 53.4 percent in March, the China Federation of Logistics and Purchasing (CFLP) said Friday.

The March index rebounded after sliding for three consecutive months, higher than the six-month low of 52.2 percent in February and 52.9 percent in January.

A reading above 50 percent indicates economic expansion. One below 50 percent indicates contraction. China’s PMI has stayed above the boom-or-bust line for 25 months in a row. The survey covers more than 820 companies in 20 industries, including energy, metals, textiles, automobiles and electronics.

China's economy continues to boom

The pickup is mild and indicates that China’s economy is moving along the direction set by its macro control policies, the CFLP said in a statement, adding the steady economic growth needs to be further consolidated.

“The rebound in PMI is in line with current economic growth,” Zhang Liqun, a researcher with the Development Research Center of the State Council, said in the statement.

Investment growth remained high and steady in the first two months while growth in exports and consumption dropped, he said, noting total demand growth has declined.

The CFLP data showed that the manufacturing industry’s production, a component sub-index, stood at 55.7 percent in March, an increase of 1.9 percentage points from February.

New export orders rose to 52.5 percent from February’s 50.9 percent. The input prices sub-index, a measure of how much factories pay for raw materials and other goods, moderated to 68.3 in March from 70.1 in February.

“The purchasing prices remain at a high level, adding to factories’ costs and hurting their profitability,” said Liu Tiejun, an analyst with Haitong Securities.

China still faces great inflationary pressure in the second quarter and the government will not loosen its stance on tightening efforts, said Liu Jun, analyst with Orient Securities. He expected a record high consumer price index figure for March, which will prompt an interest rate rise.

China has stepped up fighting inflation by soaking up liquidity in the market while maintaining a steady economic growth and employment. The consumer price index (CPI), a major gauge of inflation, rose 4.9 percent in February, with inflationary pressures spreading from the food sector to other industries.

The central bank has raised benchmark interest rates three times since the start of last year and increased the reserve requirement ratio for commercial banks nine times to contain inflation.

Xia Bin, an advisor to the Chinese central bank, said China will likely raise interest rates further this year to combat inflation and bring real deposit rates back into positive territory, according to Friday’s issue of the China Securities Journal.

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