US China Business Development Associates


Service business...

Rising market demand and growing confidence send the indicator to the highest level since September 


A leading indicator of business activity in China rebounded to a six-month high in March. 


The non-manufacturing Purchasing Managers' Index rose to 58, an increase of 0.7 from the February figure, according to a statement released by the China Federation of Logistics and Purchasing. 


The reversal came as rising demand and growing confidence saw a steady expansion of the country's non-manufacturing sector. 


Last month, the CFLP reported a February reading of 48.4 percent, but subsequently revised that figure to 57.3 after seasonal factors were taken into account. 


A reading above 50 indicates sectoral expansion, while a figure below that mark shows a contraction. 

The index has risen for two consecutive months, following a decline in January, and is now at its highest level since September. 


"Activity in the non-manufacturing sector was active on the back of rising market demand, and the sector maintained sound growth momentum," the statement said. 


Cai Jin, the CFLP's vice-president, said vigorous business activity and rising demand in the service sector were the key drivers of the rise in the March index. 


Among the PMI sub-indices, the new orders index for March came in at 53.5, a rise of 0.8 from the previous month, the statement said, adding that the pace of growth of new orders is accelerating. 

The new order index for the service sector was 52.8, which was 1.2 points higher than in February, with retailing and information technology registering the fastest growth. 


Demand in the construction industry also recovered as warmer weather prevailed. Nearly 30 percent of the companies surveyed said they were awarded more contracts in March than in the previous month. 


However, demand is still low in the property market because of the government's continued tightening policies, and an index of new orders below 50 indicates that the sector is still contracting. "The impact of slowing investment in the industry may bring more challenges," said Cai. 


The growth of fixed investment stood at the relatively high rate of 21.5 percent in the first two months of the year, and the CFLP said the construction industry would maintain its growth momentum if the investment rate remains higher than 20 percent throughout the year. 


Meanwhile, the index of intermediate input prices, an indicator of costs in the intermediate stages of production, rose 1.2 points month-on-month to 60.2 percent, suggesting that costs are rising, especially those for energy, storage and logistics. 


"The upward pressure on prices from rising costs is emerging, while intermediate input prices may be pushed even higher by the price of (crude) oil," said the statement. 


Nonetheless, Cai is optimistic about non-manufacturing business activity in the coming months, because business expectation is now at the highest level since August 2011. 


While the overall index of business activity expectation stands at 66.6, all the companies surveyed were confident of expansion. 


The CFLP's non-manufacturing PMI is based on a survey of approximately 1,200 companies across 20 industries, including transport, real estate, retailing, catering and software. 


The non-manufacturing PMI figure came two days after the CFLP reported manufacturing PMI of 53, the fourth consecutive month of growth and the highest level since March last year. 


In a research note, Lian Ping, chief economist at Bank of Communications, said that steady economic growth is still the primary goal as inflation eases, and that the economy will grow this year as macroeconomic policies are eased