The GDP numbers would not seem to suggest much room for optimism. China’s first-quarter growth came to 6.1%, the lowest in nearly two decades. The World Bank and the Organization for Economic Cooperation and Development cut their full-year forecasts to 6.5% and 6.3%, respectively.
Many economists, however, see the situation in a more positive light. “Definitely, we’re moving into the upward slope of the V,” said Glenn Maguire, chief Asia-Pacific economist at Société Générale.
The China Purchasing Managers’ Index (PMI), a closely watched measure of manufacturing activity, was one such area of evidence, reaching 52.4 in March, up from February’s 49.0. It was the first time since September that the PMI had crossed the 50-point threshold, thereby indicating manufacturing growth.
“The PMI is only the beginning of a series of numbers that point in that direction,” said Ken Peng, China economist at Citigroup. “Everything from investment to credit expansion have all been very strong. I think we are in the beginning of a recovery.”
Other March figures, such as industrial production, up 8.3% year-on-year, and fixed-asset investment, up 30.3%, reaffirm the view of an economic rebound.
Some data are more ambiguous. Electricity use declined 4% year-on-year in the first quarter, while power consumption was down 2% in March. Furthermore, a separate PMI released by brokerage CLSA showed manufacturing activity in March contracting more quickly than in February.
Even if China is able to enjoy a domestic recovery, success is not guaranteed.
Wang Tao, chief China economist at UBS, said that while she expects government stimulus to be effective in maintaining growth this year, she sees possible long-term risks if external demand and domestic consumption do not improve.
Citigroup’s Peng added that misallocation of stimulus funding could lead to a bad debt problem.The central bank has already moved to rein in lending – particularly to energy-intensive industries – after banks issued US$278 billion in loans in March. But Maguire sees that move as evidence of the success the stimulus. He said China is the one place in the world “where policy has gained traction, and the economy has stabilized as a result.”