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China factory activity expands in March, but pace slows, Caixin PMI shows

Workers assemble televisions on the production line of Tianle Group Co., Ltd on July 3, 2012 in Shengzhou of Zhejiang Province, China.
Feng Li | Getty Images
Workers assemble televisions on the production line of Tianle Group Co., Ltd on July 3, 2012 in Shengzhou of Zhejiang Province, China.

Activity at China's factories expanded for a ninth straight month in March but at a softer pace as new export orders slowed, a private survey showed, raising questions about whether a recent pickup in global demand is losing steam.

The Caixin/Markit Manufacturing Purchasing Managers' index (PMI) fell to 51.2 in March, missing economist forecasts' of 51.6 and down from February's 51.7.

While the index was still well above the 50.0 mark which separates expansion from contraction on a monthly basis, the rates of growth in output, total new orders, input and output prices all slipped in March from the previous month.

Growth in export orders slowed sharply, falling to a three-month low of 51.9 from 53.8 in February.

The findings contrast with those of China's official factory survey on Friday, which showed activity grew the fastest in nearly five years in March. It also showed orders improved from home and abroad.

But the Caixin/Markit survey tends to focus more on small and mid-sized manufacturers, which may be benefitting less from a months-long construction boom than big industrials such as steel mills. A sub-index of the official survey had showed small companies were still struggling, though conditions were slowly improving.

The private survey is also believed to be more reflective of export-oriented firms.

Cloudy export outlook

While China and other North Asian exporters have seen a strong rebound in shipments in recent months both in value and volume terms, the outlook is being clouded by fears of growing U.S. trade protectionism under President Donald Trump.

The Trump administration on Friday slammed China again on a range of trade issues from its chronic industrial overcapacity to forced technology transfers and long-standing bans on U.S. beef and electronic payment services.

China's manufacturing sector has been enjoying its best profits in years as a booming housing market and government infrastructure spending boosted construction.

But economists worry that fresh curbs on the heated property market and tighter credit conditions, coupled wit uncertainties about global trade, may intensify pressure on the world's second-economy later in the year.

"Overall, the Chinese manufacturing economy continued to improve, but signs of a weakening have started to emerge ahead of the second quarter. Downward pressure may further increase," said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.

The survey showed manufacturers continued to shed staff, and at a slightly quicker pace than the previous month, but the employment outlook remained relatively positive as it was the second-weakest seen in just over two years.

On the brighter side, the pace of inventory reduction quickened in March with stocks of purchases and stocks of finished goods both falling into contractionary territory.

An industry survey on Friday showed that China's steel inventory by March 31 was almost 30 percent higher than the same time last year, igniting worries that steelmakers would soon face large destocking pressures.

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