Industry across Asia may be at risk from a sudden revival in Chinese manufacturing as the workshop of the world is lifted out of a nine-month slump with the help of a $600 billion (£400 billion) monetary and fiscal government stimulus.

Traders in Shanghai and Hong Kong have taken yesterday's manufacturing data as a clear sign of recovery for the world's third-biggest economy. New jobs have been created, output has returned to positive territory and factories across a broad range of sectors received new orders in April. This is in sharp contrast to the scene late last year, when tens of thousands of factories closed and 20 million migrant workers were laid off.

The revival in manufacturing was signalled by a striking bounce in the Asia-based brokerage CLSA's Purchasing Managers' Index for April — a closely watched monthly report viewed by many investors as a more reliable snapshot of the industrial status quo in China than the official figures produced by Beijing.

The survey of industry executives showed the index pushing narrowly back above the critical level of 50 for the first time since July last year. A number below that level — such as the dismal March figure of 44.8 — implies contraction in manufacturing; anything above it signals expansion.

The recovery of the PMI to a level of 50.1 can be attributed to the country's vast stimulus package. according to CLSA's analsyis. Backed by record bank lending, the Government implemented measures designed to prevent the Chinese economy from tumbling too far below the politically sensitive GDP growth rate of 8 per cent.

“China's Government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April,” the report said, adding that the Government's spending should keep the PMI above 50 in coming months.

The CLSA report echoed an official survey produced by China's National Bureau of Statistics over the weekend, which also showed an April advance above the watershed mark of 50. These two reports support an optimistic view for a pick-up in the Chinese economy, economists at Barclay Capital said.

However, the Chinese stimulus package may have serious consequences for the rest of the region. Despite the stock market euphoria that greeted the data, some analysts believe that Beijing may be creating new problems for other Asian countries in its haste to return to double-digit growth.

The speed at which Chinese state-owned companies have been able to increase their capital spending — flying in the face of market signals — and the quality of those investments could create problems for the region, Eric Fishwick, chief economist at CLSA, said.

This kind of countercyclical investment is nothing new, but its scale and scope in China may create problems, for capacity will increase in areas where market forces would normally force it to contract.

“Building additional industrial capacity in the face of falling prices is value-destructive — and not just for Chinese businesses,” Mr Fishwick said. “China has the scale to generate profitdestructive deflationary pressures across Asia.” He added that the global downturn may force many companies to fail, but as long as politics — rather than economics — influences Beijing's decision to bankroll wild investment by state-owned enterprises, these failures will be outside China. Heavy industry in the rest of Asia is “acutely at risk,” Mr Fishwick said.

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