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China Factory Activity Expands, But Pace Slows

When China’s factory activity expanded in March for the first time since last July, it stirred hopes of sustained improvement in the country’s manufacturing sector, and though April’s numbers still indicate expansion, the pace has slowed slightly.

The official Purchasing Manager’s Index (PMI), which provides an indication of economic activity in China’ manufacturing sector, came in at 50.1 in April (numbers upwards of 50 indicate expansion in activity), down a touch from 50.2 in March.

Analysis of last month’s PMI, put out by the Fung Business Intelligence Group (FBIC), said, “In view of the signs of recovery in the property market and the positive impact of an accommodative monetary policy, we predict that China’s economic growth will stabilize in 2Q16. Going forward, we expect the headline PMI to hover around 50 in 2Q16.”

While April’s numbers are slightly less positive than the readings from March, they remain in line with expectations.

Still, Zhou Hao, senior emerging market economist at Commerzbank in Singapore, called April’s numbers “a little bit disappointing,” in a note to Reuters. “To some extent, this hints that recent China enthusiasm has been a bit overpriced and the data improvement in March is short-lived.”

Production was still in expansion territory at 52.2, though down from 52.3 in March, and new domestic and export orders were down from March, too.

Cautious factory owners held on to less inventory of finished goods and bought fewer raw materials as the prices of those inputs increased in April to 57.6 from 55.3 the month prior, and are still rising.

As a result, factories have continued to scale back on workers—at a faster pace in April—and employment has been on the decline for the last three plus years.

Last month’s extended PMI report said China’s industrial activities will be supported by an increase in public investment in the coming months.

“That being said, challenges facing Chinese manufacturers remain, include wider exchange rate fluctuations, rising labor and environmental costs, slow growth of the global economy, foreign protectionism and weaker luxury spending,” the March report noted. “Overall, we expect the industrial production (VAIO) growth to go up slightly to around 6.5% yoy in 2Q16.”