Factory Expansion Driven by Post-Holiday Workforce Return
China’s factory sector saw its fastest expansion in three months as millions of workers resumed production following the Lunar New Year holiday. According to a private-sector survey released on Monday, the Caixin/S&P Global manufacturing purchasing managers’ index (PMI) climbed to 50.8 in February, surpassing the forecasted 50.3. This increase follows a steady rise from 50.1 in January and 50.5 in December, marking the continuation of growth since last October.
This private reading aligns with official data released on Saturday, which showed the country’s factory activity at its strongest since November. The official PMI rose from 49.1 in January to 50.2 in February, according to the National Bureau of Statistics. Additionally, the non-manufacturing PMI, covering services and construction, increased to 50.4 from 50.2 in January, indicating a broad-based recovery in economic activity.
Despite these gains, economists remain cautious about the future trajectory of China’s manufacturing sector. With growing international trade tensions and the possibility of increased tariffs from the United States, China’s export-driven growth may face challenges in the coming months.
Rising Exports and Tariff Concerns
February saw the fastest rise in new export orders for China’s factory sector since last April, attributed to stronger demand from foreign buyers. Analysts suggest that U.S. importers may have ramped up purchases in anticipation of potential tariff hikes. According to Zichun Huang, a China economist at Capital Economics, the increased demand could be a temporary effect of businesses trying to avoid future trade restrictions.
Recent tariff announcements from the U.S. administration have heightened concerns over the sustainability of China’s manufacturing recovery. Additional 10% tariffs on Chinese goods are set to take effect on March 4, following an earlier round of levies imposed in February. Furthermore, earlier campaign promises included the potential for tariffs as high as 60% on Chinese imports, which could further strain trade relations.
With the annual National People’s Congress meeting in Beijing approaching, economic analysts expect Chinese authorities to introduce new policy measures to mitigate the impact of trade disputes. Investors are looking for details on fiscal spending and economic support initiatives aimed at boosting domestic demand and countering inflationary pressures.
Patchy Recovery and Economic Outlook
As China’s leadership prepares to outline economic targets for 2025, discussions at the upcoming parliamentary meetings are expected to focus on sluggish domestic demand and potential countermeasures against external trade pressures. While fiscal stimulus efforts have provided short-term economic support, long-term growth concerns for China’s factory sector persist.
Analysts warn that unless China implements stronger-than-expected economic stimulus measures, a slowdown appears inevitable. Huang of Capital Economics noted that while recent policies have aided economic momentum, they may not be sufficient to counter broader structural weaknesses.
Manufacturers are also facing rising input costs, particularly for materials like copper and chemicals, which are squeezing profit margins. Additionally, the manufacturing sector is experiencing a decline in employment, reaching its lowest level in nearly five years. Companies, especially those producing consumer goods, continue to prioritize cost-cutting measures, further exacerbating job losses.
While February’s manufacturing data suggests a temporary boost in activity, sustained economic growth for China’s factory sector will likely depend on the government’s ability to implement effective fiscal measures and navigate the ongoing challenges in global trade.
