China's March PMI Shows Modest Improvement but Misses Estimates

Official and private-sector Purchasing Managers Indices (PMI) have shown that China's manufacturing sector continued to improve in March, although the government's data fell below expectations.

Data from China's National Bureau of Statistics showed that the country's manufacturing PMI rose to its highest level in 11 months at 50.9 during the month. This was above the 50.1 reading in February, but well below expectations of a 52.0 reading predicted by a Reuters poll.

HSBC's China manufacturing PMI, which tracks smaller firms compared to the larger state-owned firms in the official data, rose to 51.6 in March from 50.4 recorded in the previous month.

The increase in HSBC report was supported by an increase in new orders, which picked up to 53.3 in March from 51.4 in February. The new orders gauge in the official data rose to 52.3 from 50.1.

A reading above 50 indicates that the sector is in expansionary mode.

The improvement in the headline figures could be considered a boost for the Chinese government's efforts to push the economy forward from 2012's lows, after the official February reading took the sector close to the contractionary territory.

But analysts point out that there are still risks of tight policies as government remains wary of an increase in inflation.

"The official PMI figures suggest that the current economic rebound remains fragile, which could falter with tightened monetary policy conditions," said China economists at ANZ.

"As Mr. Zhou remains the governor of the People's Bank of China (PBOC), China's monetary policy stance will remain hawkish towards inflation, especially when inflation expectations are rising and property prices are surging".

But economists remain optimistic that the economy will grow more than 8 percent year-on-year in the first quarter on the back of improved investment growth and a rebounding property sector. Official export data had also shown improvement, indicating a recovery in the external markets that is in line with expectations.