Chinese factories ramped up activity in March for the first time in nine months, official data showed Friday, offering a positive signal for the health of the world's second-largest economy. The result surprised observers and suggested Beijing's efforts to boost demand were having a bigger-than-expected impact.
Zhao Yang, China economist for Nomura, said the data was "much stronger" than forecast and showed "across the board" improvement. This "means a rebound could be stronger and more lasting than we initially thought," Yang added.
China's economy is a vital driver of global expansion. But it grew only 6.9 percent last year, its weakest rate in a quarter of a century. The key manufacturing sector has been struggling for months in the face of sagging global demand for Chinese products. Yet, the official Purchasing Managers' Index (PMI) from the National Bureau of Statistics (NBS), which tracks activity in factories and workshops across the vast nation, rebounded to 50.2 for March, showing that it was ticking up. It was the highest number and first expansion since June 2015. The result also surpassed the median expectation of 49.4 predicted by economists in a Bloomberg News survey. A reading above 50 signals expanding activity in the sector, while anything below indicates contraction.
Beijing has been trying to re-tool its economy to encourage domestic consumption, and move away from reliance on investment and overseas buyers. But recent policy easing as it seeks to avoid a hard landing has encouraged a resurgence of investment, and ratings agency Standard & Poor's lowered its outlook for China Thursday as credit floods the economy. The PMI figure follows February's 49.0.
Investors watch the index closely as the first available official indicator of the country's economic health each month. NBS analyst Zhao Qinghe said the March number showed "some positive signs have started to emerge" following the Lunar New Year holiday. "Manufacturing production and the market warmed up as companies started working after the Spring Festival and supply-side reform accelerated."