Manufacturing production in China rose for the second month in a row in March

Manufacturing production in China rose for the second month in a row in March

China's manufacturing sector saw a surprise return to growth in March, with operating conditions improving for the first time since last November, in part due to positive progress in US-China trade talks.

Firms signalled slightly quicker rises in output and overall new work, while employment increased for the first time in over five years, according to the latest Caixin China manufacturing purchasing managers' index (PMI).

Firmer demand led to a softer fall in purchasing activity, while input inventories also rose slightly for the first time in four months. Average input costs were up, though companies generally passed this on to clients in the form of higher selling prices. And sentiment regarding the 12-month business outlook improved to a ten-month high, amid hopes of further improvements in market conditions.

The headline seasonally adjusted Purchasing Managers' Index (PMI) – a single-figure snapshot of operating conditions in the manufacturing economy – edged up to 50.8 in March, from 49.9 in February. The index reading was also the highest seen since July 2018.

Figures above the 50.0 point mark indicate growth in manufacturing activity.

Manufacturing production in China rose for the second month in a row in March. Though modest, the rate of increase was the quickest seen since last August, and was supported by a stronger (albeit still relatively muted) rise in total new work. Furthermore, new export orders rose slightly after a fall in February.

Staffing levels at goods producers increased during March, to mark the first expansion since October 2013. Some firms mentioned hiring additional workers to support greater production and new business developments. Staff hiring also coincided with sustained signs of stretched capacity at manufacturers, as outstanding workloads continued to rise at a moderate pace.

Although purchasing activity continued to decline at the end of the first quarter, the rate of reduction was only slight. Inventories of finished goods also fell at a softer pace in March, contracting only marginally. Stocks of purchases, meanwhile, expanded slightly for the first time in four months.

Average lead times for inputs continued to lengthen during March, but the degree at which vendor performance deteriorated was marginal overall.

After declining in the prior three months, average input prices increased at the end of the first quarter. That said, the rate of inflation was only slight. Companies generally passed on higher input costs to clients by raising their selling prices modestly in March. Some firms also noted that firmer customer demand had enabled them to hike their charges

Optimism towards the year-ahead outlook for production improved to a ten-month high in March, with a number of firms linking positive forecasts to expectations of further improvements to overall market conditions. Nonetheless, confidence remained below the long-run series trend.

Commenting on the China General Manufacturing PMI data, Dr Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said: "Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-US trade talks, the situation across the manufacturing sector recovered in March. The employment situation improved greatly."