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Will Year of the Ox Bring China Better Days?


Strong indices, bullish-looking market are hopeful.


China's manufacturing Purchasing Managers' Index (PMI) strengthened for a third consecutive month in February, climbing to 49.0% from 45.3% the previous month. Li & Fung Research Centre reports that there were some encouraging signs: All sub-indices were higher than their respective levels in the previous month, though many were still lower than the critical level of 50% (i.e., still contracting).

In particular, both the Output Index and the New Orders Index rebounded to the expansionary zone of higher than 50% for the first time since September last year. In addition, the New Export Orders Index grew strongly by 9.7 percentage points to 43.4% in February, compared to the previous month.

The improved PMI numbers, together with the government's additional stimulus package of $585 billion, probably mark a trough in the GDP growth cycle. Andrew Pyle of ScotiaMcLeod, as reported by CEP News said: "Estimates for the country's growth outlook in 2009 have also started to levitate from the alarming 5-6% suggestions earlier this year back to 8%. Not as lofty as what we have been used to, but firm enough to put a floor under commodity prices..."

Some of the recent headlines from China Economic Net give an indication of the Beijing's strong emphasis on boosting growth.

Let's focus on a few graphs in order to gain a better understanding of China's economic situation.

First up is the relationship between China's PMI for new orders and the Baltic Dry Index -- measuring freight rates of iron ore and bulk goods -- showing both indices turning up from last year's lows.

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