Manufacturing in China Picks Up in March

HONG KONG — Manufacturing activity in China 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 China’s vast manufacturing sector, published by HSBC on Thursday, showed a reading of 51.7 points in March. That was a marked improvement from the 50.4 in February, when many factories shut for a week or more during the 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 Chinese economy has settled into a more modestly paced growth stage than it experienced prior to 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 Chinese economy out of a slowdown last year, averting the so-called “hard landing” that many economists had feared might occur.

The upturn has, however, been gradual, in part because the policymakers in Beijing have been eager to steer the economy away from the overheated growth seen before the financial crisis and towards more a modest pace of expansion, easing the risks of inflation, potential loan defaults and inefficient investment.

Longer term, China’s 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 key driver of future growth and rising wealth for China’s 1.3 billion inhabitants.

Analysts caution, however, that a range of potentially tough reforms will also be needed — including, for example, allowing more private-sector competition in areas currently 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. This requires a difficult balance between growth and reform,” economists at Citibank wrote in a research note on Monday. “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