Chinese Manufacturing Gauges Underscore Split Over Rate Cut

By Bloomberg News

Chinese manufacturing gauges for March offered a mixed snapshot of the nation’s slowdown, underscoring a split among economists over whether the central bank will lower interest rates.

A Purchasing Managers’ Index (CPMINDX) rose to a one-year high of 53.1, exceeding economists’ estimates, a report from the logistics federation and the statistics bureau showed today. The gauge has a pattern of rising in March. A PMI from HSBC Holdings Plc and Markit Economics fell to a four-month low of 48.3.

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Workers assemble keyboards at the Logitech International SA factory in Suzhou, Jiangsu Province, China. Photographer: Nelson Ching/Bloomberg

Premier Wen Jiabao has pledged to ``fine-tune'' economic policies as needed as weakness in export demand and a cooling housing market restrain an economy that probably grew at the slowest pace in almost three years in the first quarter. While analysts in a Bloomberg News survey last week unanimously said that banks’ reserve requirements will fall, only nine of 20 predicted a cut in benchmark borrowing costs this year.

“As inflation pressures continue to ease, weaker export growth is likely to prompt further easing measures,” said Qu Hongbin, a Hong Kong-based economist for HSBC Holdings Plc. “Once the easing measures filter through, growth is likely to start bottoming out in the second quarter and rebound modestly in the second half.”

The government-backed PMI is skewed to large enterprises and more affected by seasonality, with the gauge climbing an average of 3.2 points each March from 2005 to 2011 as production returned to normal after a Lunar New Year holiday, HSBC said in a note. The latest number was higher than analysts’ median estimate of 50.8.

ICBC’s Profit

Signs within the world’s second-biggest economy are mixed. While Industrial & Commercial Bank of China Ltd. last week reported higher-than-estimated net income for the fourth quarter, widening the company’s lead as the world’s most profitable lender, a government report showed industrial companies’ profits sliding.

In a statement released last night, the central bank reaffirmed a “prudent” monetary policy stance and said that economic growth is stable and Europe’s debt crisis is easing.

Morgan Stanley last week joined Nomura Holdings Inc. and Deutsche Bank AG (DBK) in raising its forecast for China’s economic growth this year even as Societe Generale SA told clients to expect a slump in corporate profits.

The world’s second-biggest economy will expand 9 percent, higher than a previous estimate of 8.4 percent, said Helen Qiao, a Morgan Stanley economist.

BHP, Mercedes

Such projections, still below last year’s 9.2 percent rate, offer little comfort for Australian mining company BHP Billiton Ltd. (BHP), seeing slower steel production in China, or German automaker Daimler AG (DAI), whose Mercedes dealers in the nation are giving record discounts.

Curbs on property sales and plans to tilt the economy toward consumption and away from a dependence on capital spending have reduced production of steel and cement and helped push down iron-ore prices. Prices of new apartments fell in 45 of 70 major cities in February from January, according to government data.

Gross domestic product probably expanded 8.4 percent in the first quarter from a year earlier, according to the median estimate of analysts surveyed by Bloomberg, down from 8.9 percent in the fourth quarter.

The logistics federation’s PMI “indicates that economic growth is in an apparent rebound state,”Zhang Liqun, a senior researcher at the Development Research Center of the State Council, said in a statement. At the same time, economic growth may still slow based on market demand, Zhang said.

China hasn’t cut benchmark borrowing costs since the global financial crisis, with the one-year lending rate at 6.56 percent and the deposit rate at 3.5 percent.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing atlzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net