Early China Indicators Show Outlook Undimmed by Trade Tension

(Bloomberg) -- With trade tensions flaring up between the two biggest economies, China’s economic outlook remains robust, according to the earliest indicators for March.

Sentiment among smaller firms improved, as did the outlook for sales managers. A gauge of manufacturing activity based on satellite imagery also rose. And despite escalating trade disputes between the U.S. and China this month, steelmakers and traders aren’t yet signaling concern. Only financial-market participants exhibited a significant deterioration in mood.

With Beijing announcing retaliation against metals levies Friday after President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged more to come, rising tension between the nations threatens sectors from steel to electronics and agriculture.

Official measures of the month’s activity -- purchasing managers’ indexes for both manufacturing and services -- are due for release Saturday. Economists surveyed by Bloomberg forecast the manufacturing PMI to rise to 50.6 from 50.3. Readings above 50 signal that conditions are improving.

Here’s what the private indicators show:

Smaller Businesses

Standard Chartered Plc’s Small and Medium Enterprise Confidence Index rose to a one-year high of 59.1 this month mainly driven by a recovery in manufacturing, according to the survey of hundreds of companies nationwide.

The demand for products picked up strongly and production recovered, economist Shen Lan wrote in a report. Compared with a year ago, business activity was slightly stronger this quarter while the outlook was a bit softer, she wrote. The bank expects that the campaign to cut leverage and tighten financial regulations will further restrain credit growth and lift funding costs.

Sales Managers

A gauge of sentiment among sales managers jumped to 52.6 in March, the highest since July, from 51.9 in February, according to a survey by London-based World Economics Ltd. A sub-index of manufacturing sales rose to a three-year high.

Satellite View

Manufacturing strengthened, according to the China Satellite Manufacturing Index, which edged up to 51.7 in March from 51.6 last month. The gauge published by San Francisco-based SpaceKnow Inc. tracks commercial satellite imagery to gauge activity levels across thousands of industrial sites.

Financial Experts

Sentiment among international financial market experts declined dramatically. The survey by the China Economic Panel -- a project of the Centre for European Economic Research in Mannheim, Germany, and Fudan University in Shanghai -- showed 12 month expectations dropped to 1.4 from 14.7 in February. The professionals’ assessment of the current economic climate also deteriorated.

“The euphoria in the face of the exorbitant growth of 6.9 percent exhibited by the Chinese economy last year seems to have evaporated,” Michael Schroeder, a senior researcher at the center, wrote in the report. Expert estimates on exports growth remained solid versus the prior month even amid trade disputes. “It remains to be seen how the current tensions over trade will impact China’s growth and exports over the coming months,” he said.

Steel Mills

The S&P Global Platts China Steel Sentiment jumped to an 18-month high of 69.09 out of a possible 100 points in March, despite the U.S. announcing tariffs on steel and aluminum products. The gauge is based on a survey of 75 to 90 China-based market participants including traders and steel mills. Readings above 50 signal expansion.

“Winter season restrictions on some industrial activity officially ended in the middle of the month and April is a seasonally strong time for steel demand as construction work gathers pace,” wrote Paul Bartholomew, a senior managing editor at S&P in Melbourne. “The steel import tariff announcement in the U.S. this month had no impact on sentiment.”

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net.

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jeff Kearns

©2018 Bloomberg L.P.

With assistance from Xiaoqing Pi