Manufacturing in China Picked Up in March

HONG KONG — Manufacturing activity in China has perked up in March after a lull during the Lunar New Year holiday in February, underlining that China’s economy appears on track for solid — but not sizzling — growth this year.

A closely watched index of sentiment in the vast Chinese manufacturing sector, published by the British bank HSBC on Thursday, showed a reading of 51.7 points in March. That was a better-than-expected improvement from the 50.4 in February, when many factories shut during the Lunar New Year break, and took the reading well above the level of 50 that separates expansion from contraction.

But despite the rebound, the March result was shy of the level seen in January — yet another indicator that the economy has settled into more modest growth than it experienced prior to the global financial crisis.

The purchasing managers’ index reading “implies that the Chinese economy is still on track for gradual growth recovery,” Qu Hongbin, chief China economist for HSBC, wrote in a statement accompanying the data release. “Inflation remains well behaved, leaving room for Beijing to keep policy relatively accommodative in a bid to sustain growth recovery.”

Improving overseas orders for Chinese-made goods and a flow of government-mandated investment into infrastructure projects helped pull the economy out of a slowdown last year, averting a “hard landing.”

The upturn has, however, been gradual, in part because policy makers have been eager to steer the economy toward more modest expansion in the hope of easing the risks of inflation, potential loan defaults and inefficient investment.

Balancing the various pressures will be tricky, analysts warn.

A renewed climb in property prices, for example, earlier this month prompted fresh efforts to cool the market — potentially hurting some developers and their lenders.

Likewise, the surge in credit that supported growth in recent years has created new risks that will need to be reined in. Zhiwei Zhang, an economist at the investment bank Nomura, warned in a report last Friday that “China is displaying the same three symptoms that Japan, the U.S. and parts of Europe all showed before suffering financial crises: a rapid build-up of leverage, elevated property prices and a decline in potential growth.”

The government is likely to tighten policy to contain financial risks, Mr. Zhang wrote, but this will come at the cost of slowing overall growth in the second half of this year.

Longer term, Chinese demographics — its labor force will shrink as the population ages — mean that the productivity of workers and companies will have to rise. The new leadership in Beijing is betting on faster urbanization as a major driver of future growth.

Analysts cautioned, however, that potentially tough changes would also be needed — including, for example, allowing more competition in areas dominated by sprawling state-owned enterprises, and weaning the economy off its reliance on state-driven investment and exports.

“China’s new leaders pledged to make the Chinese dream come true by bringing benefits of growth to the people,” economists at Citibank wrote in a research note Monday. “This requires a difficult balance between growth and reform. Reform is likely painful but there is no alternative.”

Article source: http://www.nytimes.com/2013/03/22/business/global/manufacturing-in-china-picks-up-in-march.html?partner=rss&emc=rss