official survey showed on Sunday, suggesting government stimulus measures may be starting to take hold.
If sustained, the improvement in business conditions could suggest the ailing manufacturing sector is on a path to recovery, easing fears that China could slip into a sharper economic downturn
But many analysts remain cautious on the growth outlook, citing seasonal distortions caused by the long-term New Year break in February. They argue that real investment and consumer demand were soft and pushed up inventories at a sharper rate, potentially adding pressure to the sector.
The official Purchasing Managers' Index (PMI) rose to 50.5 in March from February's three-year low of 49.2, marking the first expansion in four months, according to data released by the National Bureau of Statistics (NBS) on Sunday. The 50-mark separates growth from contraction on a monthly basis.
Analysts surveyed by Reuters had forecast the manufacturing gap would pick up slightly to 49.5, as factories ramped up after the Lunar New Year holidays and rebuilt inventories ahead of a seasonal pickup in activity in jump.
Factory output grew at its fastest pace in six months in March, reversing a letter contraction in the previous month. It rose to 52.7 from February's 49.5, the highest level seen since September 201
Total new orders also grew at a quicker pace, up to five-month high of 51.4, ending four months of contraction.
"The jump is likely to be a big boost to stock markets and could delay the reserve requirement ratio (RRR)," said Ting Lu, chief China economist at Nomura.
China has announced five RRR cuts in the past year to free up more cash for banks to boost landing to private firms, and further cuts are widely expected.
Ting said there is limited room for manufacturing PMI to rise further and the chance for another dip is "not small".
"Overall, although the manufacturing PMI in March can be somewhat more than the pessimistic expectations of the economy, we believe that the actual situation may not be as optimistic as reflected in this indicator. "Lianxun Securities said in a note.
Export orders shrank for the 10th straight month, suggesting external demand remained sluggish and further policy cushion may be needed if trade tensions escalate. China's trade-oriented neighbors Japan, South Korea and Taiwan have more signs of slacking demand, both in China and elsewhere.
"Construction work starting at the beginning of the year has led to strong domestic demand, but external demand is still weak, and the outlook on imports and exports is not optimistic, "economists at Huatai Securities said.
Tit-for-tariffs imposed by Washington and Beijing remain in place as talks continue to trade flow of billions of dollars of goods between the world's two largest economies. It's unclear if a deal is acceptable to both sides can be done.
U.S. President Donald Trump said on Friday that talks with China were going well, but he would not accept anything more than a "great deal" after top trade officials wrapped up two days of discussions in Beijing.
China's Vice Premier Liu He will head to Washington on April 3 for more talks.
SPECTER OF LAYOFFS
Chinese factories shed more staff in March, with the employment sub-index edging up to 47.6 from 47.5 in February.
Amid rising labor costs and sales, a growing number of foreign companies from car makers to electronics manufacturers have decided to shut plants in China in recent months, raising the specter of more layoffs. The jobless rate in February rose to 5.3 percent, nearing a two-year high.
Sony Corp (T 🙂 is closing its Beijing smartphone plant and production will stop at the end of the month, while Samsung Electronics (KS) ceased operations at one of its mobile phone manufacturing plants in China last year.
The PMI survey showed small and mid-sized manufacturers still worse than large companies, many state-controlled, although their activity improved from the previous month, suggesting That policy makers are trying to channel affordable financing to the private sector.
Policy makers have acknowledged the economy is under pressure. The US-China trade war is hurting China's export sector, threatening even more jobs.
In response, Beijing plans more on roads, railways and ports, along with nearly 2 trillion yuan ($ 297.27 billion) in tax cuts to ease the pressure on corporate balance sheets.
The measures will take time to kick in, say analysts who believe economic activity may not stabilize until the middle of the year. Data on Wednesday showed industrial profits fell 14 percent, the sharpest drop since at least late 2011.
Growth in China's services industry – accounting for half of the economy – picked up in March as new orders rose more quickly. The official non-manufacturing Purchasing Managers Index (PMI) rose to 54.8 from 54.3.
Construction activity swung back into high gear in March with the return of warm weather. A sub-reading for construction activity at 61.7 in March, up from 59.2 in February
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