Data released earlier on Friday showed Caixin China Manufacturing PMI bounced off lows and returned to expansion for the first time since July. China's official manufacturing Purchasing Managers' Index (PMI) came in at 50.2 for March, above a forecast of 49.3 from a Reuters poll. A similar improvement was seen in the Caixin manufacturing PMI for March, which rose to 49.7 from 48.0 in February, marking the first increase from the previous month in a year.
The segments that posted the largest gains were 1) new orders at 51.4 (February: 48.6); 2) new export orders at 50.2 (February: 47.4); and 3) output at 52.3 (February: 50.2). The employment component remained soft albeit higher at 48.1 (February: 47.6). Inventories of raw materials remained weak at 48.2 (February: 48.0) reflecting the overcapacity situation. The services PMI was also firmer at 53.8 from 52.7 in February.
Data suggests the world's second-largest economy may be showing signs of improvement in 2016, helped by a raft of measures taken by Beijing to prop up growth. However, external outlook is unclear. Export-oriented economies such as Taiwan and Korea also saw much better readings, but without signs of a pickup in underlying demand in key G3 markets (US, Eurozone, Japan), it will be difficult for the improvement to be sustained. PBoC will likely remain on an easing path until signs of more broad-based recovery emerge.
While external demand is largely outside China's control, policy makers have sufficient ammunition when it comes to domestic demand. There appears to have been some signs of recovery on the domestic front led by the property sector. February property investment registered its second consecutive positive growth since mid-2015 which has boosted demand for related industries in both the manufacturing and services sector.
“Further monetary and fiscal policy expansion can help stabilise property investment and support urbanisation-related infrastructure spending. We believe that combined with more actions on cutting of over-capacity, this represents the most appropriate strategy to anchor growth and counter deflation.” said HSBC Global in a report.
Upbeat data failed to lift sentiment. Chinese markets were mixed, with the Shanghai composite ending up 0.17 percent, or 5.0645, at 3,008.979 and the Shenzhen composite down 0.56 percent, or 10.694 points, at 1,901.515. Hong Kong's Hang Seng index closed down 1.34 percent, or 277.78 points, at 20,498.92. USD/CNY was trading at 6.4640 at 1115 GMT as markets await crucial U.S. non-farm parolls data.
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