China’s manufacturing sector saw a sharp rebound in February, with the Caixin/S&P Global Purchasing Managers’ Index (PMI) rising to 50.8, its highest level in three months.
The increase signals that factory activity is accelerating as workers return after the Lunar New Year holiday, helping to drive production and export demand.
The private-sector PMI, which remained above the 50-mark separating expansion from contraction, outpaced market expectations of 50.3 and surpassed January’s 50.1 reading.
This follows the official PMI data released earlier, showing that manufacturing activity also expanded at its fastest pace since November.
While the latest figures indicate a short-term boost in factory output, external risks such as fresh US tariffs and weakening domestic demand pose challenges for China’s broader economic recovery.
China export orders rise
The expansion in manufacturing was largely driven by an increase in new export orders, which grew at their fastest pace since April 2023.
Rising demand from foreign markets played a key role in offsetting weak domestic consumption, according to the survey data.
Economists suggest that the spike in export orders may be linked to US companies accelerating imports ahead of anticipated tariff hikes.
US President Donald Trump recently announced an additional 10% tariff on Chinese goods, set to take effect on 4 March.
This follows a previous 10% tariff imposed on 4 February, with Trump also threatening to increase levies to as much as 60% if reelected.
The heightened trade tensions raise concerns over China’s manufacturing sector, which contributed roughly a quarter of the country’s GDP in 2023.
Despite the near-term surge in foreign orders, manufacturers remain cautious about the long-term sustainability of demand.
Some analysts warn that once US importers finish stockpiling goods to avoid tariffs, export momentum could slow, adding further strain on China’s economy.
China’s domestic demand slows
While China’s manufacturing sector benefited from a post-holiday rebound, domestic demand remained under pressure.
The official manufacturing PMI, released by the National Bureau of Statistics, climbed to 50.2 in February from 49.1 in January, reinforcing signs of a recovery.
The non-manufacturing PMI, covering services and construction, showed only a marginal increase to 50.4 from 50.2 in January, highlighting sluggish consumer spending and weak business confidence.
Economists are now looking to the upcoming National People’s Congress (NPC) meetings in Beijing for further policy direction.
The Chinese government is expected to announce economic targets for 2025, along with fresh stimulus measures to support domestic consumption and investment.
Concerns persist over whether planned fiscal spending will be sufficient to counter slowing growth and persistent deflationary pressures.
Costs rise, jobs fall in China
Although factory output picked up in February, rising input costs and falling product prices continue to squeeze profit margins.
The survey data pointed to an increase in costs for raw materials such as copper and certain chemical products.
At the same time, consumer and investment goods manufacturers reported sharper declines in selling prices, reflecting weak domestic demand.
Employment in the manufacturing sector also suffered, with job cuts reaching a near five-year high. Many firms prioritised cost reductions to maintain profitability, with the consumer goods segment experiencing the most significant workforce reductions.
This suggests that while February’s PMI figures indicate a short-term recovery in production, structural weaknesses in employment and domestic spending remain key challenges.
With global demand for Chinese goods fluctuating and trade tensions escalating, policymakers face mounting pressure to unveil stronger stimulus measures at the upcoming NPC meeting.
The outlook for China’s manufacturing sector in 2024 will depend on whether these policy interventions can sustain growth amid external and internal economic uncertainties.
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