China: Fiscal stimulus pushes up PMI – ING

Iris Pang, economist at ING, notes that China's official manufacturing PMI rose to 50.0 in March from 49.2 in February.

Key Quotes

“Among all sub-indices, production, new orders, prices, and purchasing activities all showed gains (i.e. above 50). But new export orders and orders placed by customers stayed in contraction territory (i.e. below 50), though by less than the previous month.”

“For the manufacturing PMI sub-indices as a whole, we believe the improvement was the result of the fiscal stimulus' infrastructure projects. These projects are mainly new metro lines and toll roads. And this matches with the sub-index on construction business activities at 61.7 in the non-manufacturing index, which rose to 54.8 from 54.3.”

“We have to admit that this PMI report is mainly driven by China's own fiscal stimulus. Though new export orders' reading improved, it was still only at 47.1 in March (from 45.2 in February), indicating that export orders were still shrinking, albeit at a slower pace. This implies that external demand has not improved.”

“We expect fiscal stimulus in China will continue. Therefore, domestic demand will continue to lead to an increase in new orders and production in the manufacturing PMI.”