China's manufacturing picks up in April

Updated: 2014-05-02 11:36

By Gao Yuan in Beijing and Amy He in New York (China Daily USA)

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China's manufacturing growth experienced a small increase in April while new export orders fell sharply, data showed.

The purchasing managers' index (PMI) for the country's manufacturing sector rose to 50.4 in April, indicating a slight expansion, according to the data released on Thursday by the National Bureau of Statistics and the China Federation of Logistics and Purchasing. Readings above 50 show expansion, while readings below 50 show contraction of the sector. The PMI was 50.3 in March. The index began to climb in March after a three-month decline.

The world's second largest economy still faces heavy downward pressure despite the second-quarter growth showing signs of recovery, analysts said.

"Slowly expanding domestic demand is fueling the increase of PMI," said Zhao Qinghe, a senior analyst at the NBS.

The raw material procurement index also hit the three-month high, statistics show. However, the contracting new export orders sub-index in the PMI is signaling Chinese factories a sluggish export is waiting ahead. Its April reading slumped one point to 49.1.

Exports from China contracted by 3.4 percent year-on-year in the first quarter, the General Administration of Customs said.

"China's economy growth remains weak because of slowdowns in export, property and employment sectors. The country is hungry for some fresh government policies to regain the upswing momentum," said a Bank of China report released on Monday.

Yukon Huang, senior associate at the Carnegie Endowment for International Peace, said that the key issue for the manufacturing sector is the "excessively high inventory levels", which are largely concentrated in the metals and raw materials group.

"Until the inventory levels decline to historic levels, production will remain modest. My guess is that this will occur towards the end of this year," he said. "Also with housing construction slowing down, construction related manufacturing will also slow down. I do not see any pickup in this area until next year," he said.

On Wednesday, PremierLiKeqiang pledged to support trade sector in a bid to stimulate the cooling economy. Li stressed that "arduous efforts" will be needed to meet the annual growth target of 7.5 percent for 2014.

Ann Lee, professor of economics at New York University, said that PMI readings alone are "not worrying given the context of what the Chinese government has been doing and wants to happen in the economy. It would be more worrying if the service sector slowed dramatically or that consumption numbers also took a dive since those are the focus of Chinese policies."

Previous growth-spurring measures are showing positive effects in April and if the weakening increase in property sector does not worsen, the economy growth is on track to speed up, the Bank of China said.

Steady growth of PMI in the following months is every likely because of favoring policies, according to Zhang Jing, an analyst with Nanjing-based broker Huatai Securities.

"The so-so economic performance was just an acceptable start for the second quarter, the economy is set to face strong challenges in the second half of this year," Zhang said.

April PMI released by HSBC a week ago posed an even more pessimistic interpretation to the Chinese economy outlook, with HSBC showing a 48.3 PMI reading in April, up from the 48.0 recorded in March. The bank reported a fourth straight monthly decline of PMI in April, despite recording a smaller decrease.

"Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted," said Qu Hongbin, chief economist and China head at HSBC.

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(China Daily USA 05/02/2014 page1)