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China Manufacturing Grows at Faster Pace, Resists Tightening

China’s manufacturing growth accelerated for the first time in four months, easing concern that monetary tightening may lead to a sharp slowdown in the world’s second-biggest economy.

The Purchasing Managers’ Index rose to 53.4 in March from 52.2 in February, the China Federation of Logistics and Purchasing said in a statement on its website today. The reading compared with the median forecast of 54 in a Bloomberg News survey of 17 economists. A separate PMI released by HSBC Holdings Plc also gained.

Today’s data indicate that Premier Wen Jiabao is succeeding in sustaining economic growth while cracking down on inflation that topped the government’s 4 percent target in the first two months of this year. The central bank will boost interest rates again this quarter, according to all 20 economists in a Bloomberg News survey on March 22.

“The economy is still expanding at a good pace,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd., who formerly worked for the International Monetary Fund and the European Central Bank. “More tightening is necessary to contain inflation pressure.”

The Shanghai Composite Index gained 0.1 percent as of 10:36 a.m. local time.

Export Orders

Readings above 50 for the PMIs indicate expansions. Output, orders and export orders grew at a faster pace in March than February, today’s data from the logistics federation indicated. Input prices rose at a slower pace, the survey suggested.

The PMI released by HSBC and Markit Economics rose to 51.8 in March from 51.7 in February.

Bank of America-Merrill Lynch economist Lu Ting said the data was distorted by migrant workers returning to their jobs after a weeklong Lunar New Year holiday and high inventory levels may point to a looming slowdown in manufacturing. Nomura Holdings Inc. also cited “the seasonal factor.”

Central bank adviser Xia Bin said that the sooner that China raises rates the better, the China Securities Journal reported today. In contrast, Deputy Governor Yi Gang said March 23 that rates are at a “comfortable” level and he’s “not too worried” by inflation because the pace of price increases will slow in the second half of the year.

The benchmark one-year deposit rate is 3 percent and the lending rate is 6.06 percent.

Autos, Textiles

The manufacturing survey released by the logistics federation and the National Bureau of Statistics covers more than 820 companies in 20 industries, including energy, metals, textiles, automobiles and electronics. The HSBC PMI covers more than 430 companies.

The central bank has boosted interest rates three times and raised banks’ reserve requirements six times since mid- October. Inflation held at 4.9 percent in February, compared with the government’s 4 percent target for the full year.

China’s economy is expanding at “a stable and relatively rapid pace” and growth in money supply and credit is “moving in the expected direction,” the People’s Bank of China said on March 28 after a monetary policy meeting.