China says manufacturing activity expanded in March, defying expectations of a contraction

China on Tuesday said the official Purchasing Manager’s Index for March was 52.0, beating expectations for an economy hit by the coronavirus outbreak.

Analysts polled by Reuters had expected the official PMI to come in at 45 for the month of March.

In February, the official PMI hit a record low of 35.7.

PMI readings above 50 indicate expansion, while those below that level signal contraction.

China’s National Bureau of Statistics said in its announcement of the PMI reading that there was continued improvement in the prevention and control of the outbreak in March, with a significant acceleration in the resumption of production.

Sub-indices for production, new orders and employment expanded, the bureau said.

The bureau attributed the expansionary PMI reading to the low base in February, but cautioned that it does not mean that the country’s economic activities have returned to normal levels.

Earlier this year, manufacturing activity slowed dramatically in China as the government instituted large-scale lockdowns and quarantines to contain the spread of the coronavirus disease, formally known as COVID-19.

Qian Wang, Asia Pacific chief economist at Vanguard Investment Strategy, said March’s manufacturing PMI reading was “totally expected” as activity improved during the month.

“In February, the Chinese economy was at a full stop. It doesn’t take much to rise from such a low base,” she told CNBC’s “Street Signs.”

Although March’s PMI reading was in the expansionary zone, it was just a few points above 50 — indicating a modest recovery and gradual resumption of economic activity, she added. There is still significant drag on China’s economy.

“That reflects a lot about the deteriorating global outlook as well as subdued domestic demand, especially in the consumer space,” said Wang, who expects 1% to 2% GDP growth for China this year with some recovery in the second half due to pent up demand and as the global economy gets back on its feet.

Wang said the Chinese government has likely accepted that growth will take a hit this year from the coronavirus pandemic and is willing to trade off some of that as long as there is social stability.

“As long as we have some … social stability, that’s probably what the Chinese policymakers fear the most rather than just the growth numbers,” she said.

On Monday, China’s Ministry of Industry and Information Technology said that as of March 28, the resumption of work rate for larger industrial enterprises was 98.6%, and the return of workers stood at 89.9%.

A private PMI survey by Caixin and IHS Markit will be released on Wednesday.

The Caixin/Markit survey features a bigger mix of small- and medium-sized firms. In comparison, the official PMI survey typically polls a large proportion of big businesses and state-owned companies.

Featured image credit: CNBC