China economy signals recovery, industries expand in April

04 May 2009 07:00  [Source: ICIS news]

By Dolly Wu

SHANGHAI (ICIS news)--China has been showing signs of economic recovery as industrial production has come to life thanks to the government’s heavy pump-priming, analysts said on Monday.

The country’s Purchasing Managers’ Index (PMI), a barometer of manufacturing activities, indicated an expansion in April, logging in a number above 50% for the second consecutive month.

April PMI rose 1.1 percentage points to 53.5% from March, steadily rising over the past five months based on data released by the China Federation of Logistics & Purchasing (CFLP) last Friday.

“We think China’s economy has gone out of the bottom of ‘V’ shape and is recovering along with the conclusion of destocking and improved demand from the auto and housing sectors,” Essence Securities said in a recent report.

The trough may have been the first quarter when GDP growth at Asia's biggest developing economy slowed to a record 6.1% as exports slumped, analysts said.

“China’s economy is beginning the stable upward trend if the PMI remains above 50% in May and June,” said CFLP analyst who declined to be named.

The PMI is based on a survey of purchasing and supply managers at more than 700 manufacturers across the country.

Analysts attributed the improvement in industrial activities to the government’s Yuan (CNY)4,000bn ($587bn)fiscal stimulus package that was introduced in November last year.

In April, production index under the PMI showed a 0.5 percentage point increase while the new orders index rose 2.0 percentage points compared to the previous month.

Both indices showed readings above 50% for three consecutive months, indicating expansion.

“The new orders index is a meaningful sign for development of enterprises, because orders are the main support for any production enterprise, and now the data for April indicated positive trend,” said Dong XianAn, an analyst from Southwest Securities.

“That also can forecast the economic recovery in China,” he said, adding that Asia’s biggest developing economy could register a stronger growth of 7% in the second quarter.

China’s petrochemical industry had also been a recipient of a hefty stimulus package.

The hike in export tax rebates also encouraged domestic producers to boost output, said Zhang Liqun, a researcher from the Development Research Centre of the State Council (DRC).

Demand from China, a major importer of petrochemicals, had helped spur the rally of product prices since the start of the year. But the weakness in export markets could put a cap on price spikes or even pressure prices of selected prices to come down.

Judith Wang contributed to this article

($1 = CNY6.82 / $1 = €0.75)

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