China Manufacturing Improvement Signals Growth Rebound

A Chinese manufacturing index rose in April, signaling that a rebound in the world’s second-biggest economy may help to offset constraints on global growth from austerity measures in Europe.

The 49.3 final reading of a purchasing managers’ index fromHSBC Holdings Plc (HSBA) and Markit Economics today compares with a preliminary 49.1 reported April 23 and a final 48.3 in March. A separate index released yesterday by China’s statistics bureau and logistics federation was at 53.3, indicating the fastest growth in a year.

Improvements in manufacturing may encourage Premier Wen Jiabao to extend a two-month pause in lowering banks’ reserve requirements as the effect of previous easing kicks in. Wen is seeking to rein in property and consumer prices without sending the economy into a so-called hard landing. Gross domestic product increased 8.1 percent last quarter from a year earlier, the least since 2009.

“Easing measures are starting to work,” said Qu Hongbin, Hong Kong-based chief economist for China at HSBC. China’s growth may “bottom out” this quarter and climb to an annual rate of more than 8.5 percent in the second half, Qu said.

The MSCI Asia Pacific Index added 0.7 percent as of 2:10 p.m. in Tokyo on the China data and a better-than-estimated manufacturing report from the U.S. Factory data is due today for the euro region and Germany after a U.K. gauge released yesterday fell more than economists forecast. Indian manufacturing expanded at close to the slowest pace in three months, a report from HSBC and Markit showed today.

Yuan Climbs

The yuan climbed the most in two weeks before talks between U.S. and Chinese officials in Beijing tomorrow.

The fourth round of the U.S.-China strategic and economic dialogue involves U.S. Treasury Secretary Timothy F. Geithner and officials led by Chinese Vice Premier Wang Qishan. The People’s Bank of China raised the fixing 0.19 percent to 6.2670 per dollar today, the strongest level since a peg ended in July 2005 and 0.7 percent stronger than last week’s closing price.

The yuan advanced 0.14 percent, the most since April 17, to 6.3011 per dollar as of 12:02 p.m. in Shanghai.

In a sign that China’s manufacturing remains constrained by weakness in global demand, the HSBC PMI has indicated contractions for six straight months, the longest run since the global financial crisis. The official index is based on responses from managers at more than 820 companies in 28 industries, while HSBC’s measure covers more than 420 companies and is weighted toward smaller businesses.

Case for Easing

“The need for aggressive policy easing is limited given the government’s desire to slow growth and the upside inflation risks,” Chang Jian, a Hong Kong-based economist with Barclays Capital, said before today’s release. “Fine-tuning measures such as easing credit, support for first-home buyers and expansionary fiscal policy to support infrastructure will gradually feed through, so the slowdown in growth will bottom out this quarter.”

China’s new yuan loans may have fallen to about 700 billion yuan (US$111 billion) last month, down almost 30 percent from March, the China Securities Journal reported today, citing estimates from unspecified “market participants.” China’s four major state lenders extended only 101.7 billion yuan of new loans through April 25, the newspaper said, without saying where it obtained the figures.

In Beijing today, China and South Korea said that the two nations would begin talks this month on a free-trade agreement and have a goal of lifting annual trade to $300 billion by 2016, according to Chinese Commerce Minister Chen Deming.

Chen also said that the global recovery is sluggish as the global financial crisis endures.

In Thailand, the central bank will keep interest rates on hold today, according to a Bloomberg News survey of analysts.