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China: Factory output stabilizes

China: Factory output stabilizes

Write: Pradeepta [2011-05-20]
Manufacturing in China stabilized in February although it shrank for the seventh straight month, according to CLSA's latest Purchasing Managers Index.

The index rose to a seasonally adjusted 45.1 from 42.2 in January, as exports dropped and economic growth slowed amid the global meltdown. A reading below 50 indicates a contraction.

The figures - released a day before the opening session of the Chinese People's Political Consultative Conference - are in line with Premier Wen Jiabao's comments last Saturday that there are signs of a recovery even as the effects of the financial crisis linger.

"The rises in the PMI and its orders indices are encouraging but must be interpreted cautiously. Manufacturing activity is still contracting, but at a more moderate pace than at the end of 2008," CLSA head of economic research Eric Fishwick said.

Jing Ulrich, managing director and chairman of JPMorgan equities, agreed but warned a rebound in the export manufacturing sector will not happen soon.

"China's leadership recognizes that pump priming alone cannot offset the effects of the global economic crisis."

The National People's Congress, which opens on Thursday, should make more clear the government's fiscal stimulus plans as well as additional measures designed to promote domestic consumption and expand social welfare benefits, Ulrich said.

The other key question is whether households would increase spending faster after the easing of fiscal and monetary policy, Goldman Sachs economist Helen Qiao and Yu Song wrote.