Blitz Bureau
NEW DELHI: China’s factory activity expanded in March, ending two months of contraction, the Government said on March 31.
The official manufacturing purchasing managers index rose to 50.4 from 49 in February, the National Bureau of Statistics reported, beating economists’ expectations and notching the strongest reading in a year.
PMI is measured on a scale of 0 to 100 and a reading above 50 indicates expansion.
While the latest official data covered a period after the Iran war began on February 28, analysts say the impacts of surging energy costs have not yet been fully seen.
“So far supply disruptions have not occurred in a material way,” said Jacqueline Rong, Chief China Economist, BNP Paribas, a French bank.
A years-long property sector slump in China has also weighed on economic growth and weakened domestic consumption and investment demand in China, the world’s second-largest economy after the US.
To help drive its economy, China has been reliant on growing exports, especially to regions such as Southeast Asia and Europe, which propelled its trade surplus last year to a record $1.2 trillion despite higher US tariffs.
China’s export engine could hit headwinds as the Iran war drives up energy costs and disrupts supply chains, with most maritime traffic blocked from passing the Strait of Hormuz, through which roughly a fifth of the world’s oil normally passes.
China’s exports could also suffer if overall global growth takes a serious hit from the energy crisis. Chinese leaders in early March unveiled an economic growth target of 4.5% to 5% for this year, a slightly lower goal than the “around 5%” last year and the lowest growth target since 1991.
For now, China’s economy “appears to have weathered” the energy shock from the Iran war well, wrote Zichun Huang, China economist at Capital Economics.
Trade ties with US
With China’s exports to the U.S., its largest trading partner, in decline over the past months, economists are closely watching for positive signs in trade relations between Washington and Beijing as US President Donald Trump is expected to meet with Chinese leader Xi Jinping in May.
Some analysts say lower U.S. tariffs following a recent Supreme Court ruling against Trump’s wide-reaching global tariffs could give China a small boost to exports and factory activity.