Manufacturing Data Show Easing Slowdown

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Mar. 5 – According to results of February data, manufacturing activity in China is steadying after months of decline.

The China Federation of Logistics & Purchasing reported that the  Purchasing Managers Index increased to 49.0 last month from 45.3 in January.

The CLSA China PMI also climbed to 45.1 in February from 42.2 in January. Analysts warn that the improvement might just be short-term because domestic and external demand is still depressed.

The government’s measures to support the economy are having an impact and China’s economy is undergoing an “active change,” including an increase in the restocking of inventories, rapid credit growth, and a recovery in electricity generation, CFLP PMI analyst Zhang Liqun told The Wall Street Journal.

A PMI figure of above 50 is indicative of an expansion in manufacturing. China’s CFLP PMI has been below 50 for five months and the CLSA PMI has been below 50 for seven months.

The CLSA data is gathered from a survey of 400 companies and is considered a reliable indicator agains the government’s official PMI figures.

“China’s economy could be entering a sustained recovery track,” Zhang Liqun added.

The spike in the manufacturing sector may indicate  that companies were restocking supplies after downsizing inventory previously rather than a symptom of improving demand.

Only time will tell if the manufacturing sector has already passed the most painful part of the economic slowdown and will now begin bottoming out. “China’s industrial sector isn’t decelerating as rapidly as it did last autumn … it remains to be seen if this uptrend is sustainable,” J.P. Morgan’s chairwoman of China Equities, Jing Ulrich, was quoted by MarketWatch.

In the CFLP PMI,  finished-goods inventory increased to 47.7 in February from 43.5 in January and 45.3 from 44.7 over the same period in the CLSA PMI.

Last December, the steel production industry began gathering stocks and raising prices in anticipation of the demand to be created by the government’s stimulus plans. Currently the surge has still not happened and manufacturers has since cut prices.

According to a 2008-2009 China Manufacturing C0mpetitiveness Study done by AmCham Shanghai, 90 percent of respondents say that they plan to retain manufacturing operations in the country despite challenges.  The companies cite that China’s domestic market potential is the top reason for staying and not moving to another lower cost country.