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Purchasing index sets stage for optimism

AMID the doom and gloom numbers flying around all parts of the world, China's top statistics bureau issued an optimistic figure yesterday, as the March Purchasing Managers Index moved into expansionary territory for the first time in six months.

The report caused a few economists to say China may have now reached the depths of the downturn, though they - and many other experts - caution that's still a long way to go before full recovery mode is declared. And, they also point out, China's economic growth is highly dependent on what's happening in the rest of the world, where room for optimism is hard to find.

The PMI, a key indicator of activity in the manufacturing sector, rose to 52.4 in March, the highest level in 10 months, from 49 in February. Readings above 50 indicate expansion while those below signal contraction.

"The Chinese economy may have hit rock bottom in the March quarter," said Sherman Chan, a Moody's economist.

New domestic orders, which earned a 54.6 rating, were the driving force of the recovery. In addition, the contraction in new export orders moderated notably from February, indicating that the key external downside pressures on manufacturing may have weakened, though they have not disappeared.

The PMI index covers purchasing and supply managers at more than 700 manufacturers across China.

The optimism prompted by the latest PMI, which has grown for four straight months, was shared by China's top statistics official.

"The continuous increase in the index, alongside other positive signs, shows that China's economy may have bottomed out," Ma Jiantang, head of the National Statistics Bureau, was quoted as saying by the China Information News yesterday.

Chan said the government's commitment to maintaining strong growth may have also improved domestic business confidence.

The central government announced a massive 4 trillion yuan (US$586 billion) stimulus package in November to boost the country's economic growth amid the global downturn.

China is targeting economic growth of 8 percent this year, while the World Bank is forecasting 6.5 percent.

Economists pointed out that China's economy can't rebound strongly without a recovery in the global economy. About 30 percent of China's economic growth relies on external demand, which is expected to continue to be weak this year.

"The expansionary PMI indicates the stabilization of the economy, as the worst moment is over," said Stephen Green, Standard Chartered Bank's chief economist in China. "However, there won't be a strong recovery, as exports and private-sector investment are still contracting."


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