BEIJING: Growth in China鈥檚 manufacturing sector picked up more than expected in March as authorities lifted winter pollution restrictions and steel mills cranked up production as construction activity swings back into high gear.
The official Purchasing Managers鈥� Index (PMI) released on Saturday rose to 51.5 in March, from 50.3 in February, and was well above the 50-point mark that separates growth from contraction on a monthly basis.
Analysts surveyed by Reuters had forecast the reading would pick up only slightly to 50.5.
The findings add to a growing amount of data which suggest that China鈥檚 economy has carried more momentum into the first quarter from last year than analysts had expected, which should keep synchronized global growth on track for a while longer even as trade tensions build.
February鈥檚 print had been the lowest in 18 months, but many analysts suspected it was due to disruptions related to the long Lunar New Year holidays, not a sharp drop in consumption.
Indeed, the March survey showed manufacturers shifted into higher gear as usual as seasonal demand picked up at home and abroad. The sub-index for output jumped to 53.1 from 50.3 in February, while total new orders rose to 53.3 from 51.0 and export orders climbed to 51.3 from 49.0.
The China Logistics Information Center, in a commentary on the PMI figures, said it expected first-quarter economic growth to be about 6.8 percent. Early this year, economists polled by Reuters were pencilling in a fade to around 6.6 percent.
Large companies saw a modest pickup in growth, while small firms鈥� activity expanded marginally after shrinking in February.
Helping drive positive sentiment, exports have been better than expected in the first two months of the year, particularly for tech products, the fastest-growing segment of China鈥檚 industrial sector. Though a sub PMI for hi-tech manufacturing eased in March, growth remained solid.
However, a sharp escalation in trade tensions with the US is clouding the outlook for both China鈥檚 鈥渙ld economy鈥� heavy industries and 鈥渘ew economy鈥� tech firms.
The Trump administration slapped hefty tariffs on steel and aluminum imports last week and then targeted China specifically with plans for additional tariffs of up to $60 billion of its goods, likely focusing on tech and telecommunications products.
鈥淪tress tests have shown the new US tariffs will have a relatively small impact on Chinese steel. Chinese steel firms should not be overly worried and should focus on guaranteeing demand from the domestic market and our major exporters,鈥� the China Steel Logistics Professional Committee said.
鈥淏ut it鈥檚 worth noting that the amount of steel products we supply to US consumers through the global supply chain may well exceed China鈥檚 direct exports to the United States,鈥� it added. 鈥淐hina should proactively oppose US unilateral trade protectionism to maintain the global supply chain.鈥�
This spring could see a major test of Chinese manufacturers鈥� surprising eighteen month run.
In the first quarter, China鈥檚 steel companies defied expectations for a winter lull and continued to ramp up output in response to strong sales, while boosting borrowing, capital expenditure and hiring, a survey from the China Beige Book showed on Wednesday.
Production increased further after winter smog controls expired on March 15 in many areas. A separate PMI on the steel sector rose to 50.6 in March from 49.5 in February, the China Logistics Information Center (CLIC) said.
But the burst in output has pushed steel inventories to multi-year highs, sending prices sharply lower and reducing mills鈥� profit margins.
At the same time, growth in property sales and new construction starts appears to be slowing, and Beijing has hit the brakes on some local governments鈥� infrastructure spending due to concerns over high debt levels.
Those factors, along with rising borrowing costs, should weigh on activity eventually, with economists sticking to forecasts that China鈥檚 growth will cool to around 6.5 percent by the end of the year.
Boosted by government infrastructure spending, a resilient housing market and unexpected strength in exports, China鈥檚 manufacturing and industrial firms helped the economy produce better-than-expected growth of 6.9 percent in 2017.
A sister survey showed growth in China鈥檚 service sector also kicked up a notch in March, with the official non-manufacturing Purchasing Managers鈥� Index (PMI) rising to 54.6 from 54.4.
A sub-reading for construction activity stood at 60.7 in March, up from 57.5 in February.
Chinese policymakers are counting on growth in services and consumption to rebalance their economic growth model from its heavy reliance on investment and exports. The services sector now accounts for over half of the economy, with rising wages giving Chinese consumers more spending clout.
China is aiming for economic growth of around 6.5 percent this year, the same target as in 2017, while pressing ahead with its campaign to reduce risks in the financial system, Premier Li Keqiang said earlier this month.
A composite PMI covering both the manufacturing and services activity rose to 54.0 in March, from February鈥檚 52.9.