China's factories stop shedding jobs

China’s factories stopped losing jobs in March for the first time in nearly five years as manufacturing activity grew at the fastest pace since 2012, according to an official gauge of the sector.

The official purchasing managers’ index for China’s manufacturing sector came in at 51.8 in March, climbing further above the 50-point mark separating growth from contraction.

But the biggest turnround came from a sub-index tracking employment, which hit the 50-point mark, marking the first month in which the manufacturing sector has not shed jobs since May 2012.

Measures of output and export orders also notched up minor increases, suggesting continued — albeit mild — improvement in external and domestic demand.

February’s data suggest the recovery this year has been driven in part by surging state spending, with fixed-asset investment by state-owned businesses up more than 14 per cent from the same month a year ago.

Despite signs of recovery, economists are sceptical the investment-driven rally can continue.

“Strong property investment continues to drive China’s growth momentum in the near term,” economists at ANZ Bank said in a research report. “However, we doubt that an investment-led recovery is what the central government wants to see.”

A pullback in state support could bode ill for hard-hit smaller factories, which finally appear headed for mild recovery after years of painful consolidation. The latest PMI reading on activity at small-scale manufacturers showed marked improvement as contraction softened more than 2 points to 48.6.

The official sub-index for the services industry also registered gains in March, rising to a two-year high. A broader gauge of growth for all non-manufacturing activity rebounded from a February dip to reach the highest level since May 2014.

Meanwhile, a sub-index for construction activity rose for the first time in two months, underlining the abiding importance of the sector for China’s broader economy.

Julian Evans-Pritchard, China economist with Capital Economics, said the latest data tracked with other indications of rapid recovery in the first quarter. However, he said he was doubtful that it would be long-lived.

“This strength probably won’t last,” he said. “The correction in the property market still has much further to run, which, in combination with policy tightening, will drive a slowdown in investment and industrial activity during the coming quarters.”