Manufacturing activity in China expanded unexpectedly in March at its fastest pace in eight months, a private survey showed on Monday.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 50.8 for March. Analysts had expected it to come in at 49.9 for a second month, according to a Reuters poll of economists.
A reading below 50 signals contraction, while a reading above that level indicates expansion.
New orders climbed to their highest level in four months, while the index for new export orders returned to expansionary territory, “showing that both domestic and external demand rebounded moderately,” wrote Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, a subsidiary of Caixin.
Markit and Caixin said in a joint press release that staffing levels at factories rose in March to mark their first expansion since October 2013. Some firms also hired additional workers to support greater production and new business developments, they added.
“Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-U.S. trade talks, the situation across the manufacturing sector recovered in March,” said Zhong.
Results of the private survey came after data on Sunday showed the official Purchasing Managers’ Index rose to 50.5 in March from February’s three-year low of 49.2. It marked the first expansion in four months, according to data released by China’s National Bureau of Statistics.
The manufacturing numbers come amid ongoing tariff talks between the U.S. and China aimed at resolving their trade differences. High-level trade negotiations between the two economic powerhouses are set to resume in Washington this week following last week’s talks in Beijing.
The Caixin PMI is a private survey focused on smaller businesses and offers a first glimpse into the operating environment. It is closely watched as an alternative to the official PMI.
Despite the strength of China’s March manufacturing data, there are still reasons to be cautious about the country’s near-term outlook, said Julian Evans-Pritchard, senior China economist at Capital Economics.
The breakdown of both the official and private PMI indexes suggests a slight recovery in external demand, with most of the improvement coming from a pick-up in domestic demand, wrote Evans-Pritchard in a note on Monday.
“We suspect that this was driven by stronger fiscal support since local governments have stepped up bond issuance recently,” he added. “On that note, the official PMI for the construction sector rose last month, consistent with an acceleration in infrastructure spending.”
China’s growth could still weaken in the near-term as indicated by recent credit growth data and a sharp decline in land sales purchases, Evans-Pritchard said.
Results of the Caixin PMI survey for the services sector are due to be released on Wednesday.
