China’s official factory gauge showed improving conditions for the first time in eight months, suggesting the government’s fiscal and monetary stimulus is kicking in.

The manufacturing purchasing managers index rose to 50.2 in March, compared with a median estimate of 49.4 in a Bloomberg News survey of economists. The measure matches its highest level since November 2014. The non-manufacturing PMI rose to 53.8 from 52.7 in February. Metals rose after the report.

Top officials at the National People’s Congress last month unveiled a record fiscal deficit and pledged to accelerate restructuring of bloated state-owned industries to meet their 6.5 percent to 7 percent expansion target for this year. Monetary authorities have flagged more room to act if growth falters.

"People were worried about a hard landing at the start of the year, but after the National People’s Congress, the expectation now is that the government won’t let growth slide below the bottom line of 6.5 percent," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "Monetary policy will stay easy, helping business confidence."

Seasonal Effect

Seasonal volatility is one factor behind the rebound, according to an NBS statement released with the data, as factories started to run machines again after the lunar new year holiday in February. "Some positive signs are showing up," an NBS statistician said in the statement. "At the same time, there are still considerable difficulties in businesses."

Su Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong, said the report should be interpreted with caution, citing a decline in the employment sub-index of the non-manufacturing measure. "There is evidence that the great rebalancing is stalling," she said.

A separate, private PMI reading from Caixin Media and Markit Economics rose to 49.7 in March to the highest level since February 2015. As with the official measure, readings above 50 signal improving conditions.

In the official report, measures of manufacturing output, new orders, new export orders, purchasing quantity and input prices all rebounded from February.

Property Rebound

A rebound in property sales and turnaround in property investment "is likely the biggest driver," said Julia Wang, an economist with HSBC Holdings Plc. in Hong Kong. "A stronger fiscal impulse to support infrastructure investment spending also offered support. We expect both monetary and fiscal easing to continue to support the recovery in the coming months. "

Home prices in some of China’s biggest cities are surging, spurring policies to curb loose lending even as authorities seek to support overall demand. To underpin economic growth targets, China’s top planning agency is doling out new fiscal stimulus, further raising the amount of money available to local governments this year under a special infrastructure bond program, people familiar with the matter have told Bloomberg.

"Policy support is likely to continue in order to sustain GDP growth within the government’s comfort zone," Bloomberg Intelligence economists Fielding Chen and Tom Orlik wrote in a note. The People’s Bank of China "is expected to maintain an easing bias."

The government may accelerate the construction of urban public utilities, build more high-speed railways and continue to renovate urban slums, the BI economists wrote. Meanwhile, more tax cuts are expected to boost consumption and support firms.

"The stronger-than-expected gains in both the manufacturing and non-manufacturing PMIs add to confidence that Chinese growth has stabilized," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. "It’s hard to see a big acceleration though, with the manufacturing PMI more likely to range around the 50 level, and this is likely to require more stimulus measures going forward."