Will China see a strong manufacturing activity rebound after contracting for 5 months?
- China’s official gauge of manufacturing activity fell in February, in part thanks to the Lunar New Year holiday season
- Figures come in advance of gross domestic product growth target, to be announced at annual session of China’s top legislature next week
China’s manufacturing activity declined for the fifth consecutive month in February, with the fall attributed to disruptions surrounding the Lunar New Year holiday, but analysts anticipate a moderate pickup in the months ahead despite structural frailties still looming large.
The new-orders subindex remained unchanged at 49, while the new export orders subindex stood at 46.3, compared to 47.2 in January.
The readings, though, are expected to see an improvement in the near term thanks to policy support, although “this rebound appears fragile and may not last once policy support is scaled back,” with the recovery set to be short lived due to structural issues, said analysts at Capital Economics.
We need to wait for more macro data on retail sales and industrial production in January and February to get a clear view of the economy
Elsewhere, the non-manufacturing PMI, which measures business sentiment in the services and construction sectors, climbed to 51.4 from 50.7 in January, thanks to booming travel and dining activities during the Lunar New Year.
The PMI readings are seen as less reliable in February because the Lunar New Year holiday makes it difficult to obtain a clear picture of economic momentum, according to Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
“This is particularly true for the manufacturing sector,” he said.
“Meanwhile, other data points show a mixed picture, with travel data strong but housing data weak. We need to wait for more macro data on retail sales and industrial production in January and February to get a clear view of the economy.”
The official composite PMI, which includes both manufacturing and services, remained unchanged at 50.9 in February, indicating a slight expansion of production and business activities.
Senior NBS statistician Zhao Qinghe also attributed the slowdown in the manufacturing sector to the Lunar New Year holiday, which took place over eight days in mid-February.
“Additionally, an increase in employees returning home for the holiday period [as the pandemic had been under control] further impacted firms’ production and operations,” Zhao added.
Despite the poor data resulting from statistical issues and holiday disruptions, the readings in February suggested a rosy picture, driven by strong credit growth and fiscal spending at the start of the year, said Xu Tianchen, a senior China economist with the Economist Intelligence Unit.
“At this moment, we should probably overweight the Caixin PMI, which points to stronger momentum,” he said.
Beijing has vowed to hit the ground running on the economic front in 2024, as most observers have predicted an official target of 5 per cent expansion of gross domestic product (GDP) to be announced this year.
The Chinese leadership has already heightened its rhetoric on economic issues, making promises for a unified market, improved business environment and an escalation in consumption during several high-profile conferences in February.
The annual GDP growth target is due to be released at the annual session of the National People’s Congress, which will begin on Tuesday.
