A new survey of Chinese manufacturing provided fresh evidence on Monday that massive fiscal and monetary stimulus is reviving the world's third-largest economy. An index based on a survey of industry executives conducted for Hong Kong-based brokerage CLSA rose to a nine-month high of 50.1 in April from 44.8 in March.
It was the first time since July 2008 that the Purchasing Managers' Index (PMI), designed to provide a timely snapshot of manufacturing conditions, has been above the watershed of 50. A reading above that level indicates expansion; a figure below 50 signals contraction. Economists were particularly impressed by the breadth of the improvement, which they said showed the impact of the government's 4 trillion yuan ($585 billion) stimulus plan as well as record new lending by China's state-owned banks. Sub-indexes for output, new orders, employment, quantities of purchases and backlogs of work all punched through the neutral mark for the first time since July.
"China's government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April," said Eric Fishwick, head of economic research at CLSA. He said he expected the export orders sub-index, which jumped to 48.8 in April from 41.4 in March, to soften again as orders track final demand overseas.
"However, we hope that firmer domestic demand, as government spending gains traction, will keep the PMI above 50 in months to come," Fishwick said in a statement. CLSA's PMI reinforced the positive signals from a similar survey produced for the National Bureau of Statistics.
The official PMI, released on Saturday, held above the boom-bust line of 50 for the second month in a row, rising to 53.5 in April from 52.4 in March. Wengsheng Pang and Jian Chang with Barclays Capital in Hong Kong said in a report that the surveys lent support to their view that the economy was starting to pick up.
They said strength in new orders in the CLSA survey foreshadowed further a recovery in production, while a drop in stocks of finished goods in the official survey indicated that manufacturers were still running down inventories, which would eventually have to be replenished.
The employment sub-index of both PMIs rose above 50 for the first time since last summer, when a sudden downturn in global demand forced factories to start shedding labour. Government surveys estimate that more than 20 million migrant workers have lost their jobs, a lot of them in the construction sector. With companies hiring again, Mingchun Sun with Nomura in Hong Kong said the omens for income growth were good.
"Therefore, it should help reduce the concerns on weakening consumption this year," he said in a note. Sun reiterated his forecast of a V-shaped recovery leading to 8 percent growth for all of 2009 and said the risks to his forecast were on the upside.
Zhang Yutai, head of the Development Research Centre, a think-tank under the State Council, China's cabinet, agreed that the economy's current performance was better than expected. But Zhang told the People's Daily it was still too early to conclude that the economy had bottomed out. He cited weak activity in the private sector, slow growth in incomes and continuing uncertainty in the global economy.
The State Information Centre, another think-tank, forecast that annual gross domestic product growth could accelerate to 7 percent this quarter from 6.1 percent in the first three months of the year, propelled by strong fixed-asset investment. The Shanghai stock market took heart from the bullish reports, rising 2.28 percent in the morning session to 2,534.084 points, its highest level in nearly two weeks.
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