PMI reaches 11-month high in March

An improvement in domestic and external demand helped China's factory activity rebound in March but still fell short of market expectation, a sign that the world's second largest economy is returning to growth but still fragile, the official purchasing managers' index (PMI) showed Monday.

The index, a major gauge of the country's manufacturing activities released by the National Bureau of Statistics (NBS), rose to an 11-month high of 50.9 in March, from 50.1 in February, and above the 50-point level which divides economic expansion from contraction.

The new orders component of the PMI rebounded to 52.3 from 50.1 in February, and the component of new export orders picked up to 50.9 from 47.3, showing an improvement in demand.

"This reading indicates growth has held up after a relatively slow start in the first two months of the year," Song Yu, a China economist at Goldman Sachs, told the Global Times in a research note on Monday.

A separate HSBC survey measuring activities of small and medium-sized enterprises showed the PMI climbing to 51.6 in March, up from February's 50.4, and quite consistent with the official PMI trend.

However, Song pointed out that the PMI rebound seems strong partially due to the weaker reading in February, which was dragged down by holiday and seasonal factors.

That the current level is slightly over 50 points suggests that the growth momentum has stabilized, but headwinds remain, Liu Ligang, chief China economist at ANZ Banking Group, told the Global Times in a research note.

The official PMI rose by an average of 3 percentage points from February to March over the period between 2005 and 2012, but rose by only 0.8 percentage points in 2013, indicating that the current economic recovery is weak, said Zhang Zhiwei, chief China Economist at Nomura Securities.

The 50.9 reading is below the market consensus of 51.2, and could force economists to cut their GDP forecasts for the first quarter of 2013, Lu Ting, China economist with Bank of America Merrill Lynch, said in a research note on Monday.

The official PMI survey showed a declining trend in the input price sub-index which slumped to 50.6 in March from 55.5 in February, and the inventory of raw materials sub-index also dropped to 47.5 in March from 49.5, despite an improvement in the inventory of finished goods.