Slower China manufacturing activity growth dents economic recovery prospects

BEIJING – China’s manufacturing activity expanded at a slower pace in March, official data showed on Friday, suggesting that hopes of a strong post-Covid-19 economic recovery are faltering amid weaker global demand and a continued property market downturn.

The services sector was stronger, with activity expanding at the fastest pace in nearly 12 years after the end of China’s zero-Covid policy in December boosted transportation, accommodation and construction.

The official manufacturing purchasing managers’ index (PMI) stood at 51.9 compared with 52.6 in February, according to data from the National Bureau of Statistics (NBS), above the 50-point mark that separates expansion and contraction in activity on a monthly basis.

This slightly exceeded expectations of 51.5 tipped by economists in a Reuters poll. The February figure had grown at the fastest pace in more than a decade.

China’s economic activity

picked up in the first two months of 2023

as consumption and infrastructure investment drove a recovery after

the end of Covid-19 disruptions

and retail sales swung back to growth.

But there are questions over the strength and sustainability of the post-reopening rebound. Exports remain weak and new home sales continue to fall, although the rate of decline is narrowing.

Companies face challenges that include weak demand, tight availability of capital and high operating costs, and the foundations for an economic rebound need to be further consolidated, NBS said in an accompanying statement.

To support the recovery, China’s central bank in March unexpectedly cut the amount of cash that banks must hold as reserves, the first time it has done so in 2023.

While business and consumer sentiment is starting to pick up, the manufacturing sector remains under pressure to maintain growth momentum amid sluggish global demand and stubbornly high costs.

Any fallout from a recent crisis of confidence in the global banking sector can also affect demand for China’s goods, adding to pressure on manufacturers.

Official data this week showed that the slump in Chinese industrial firms’ profits deepened in the first two months of the year, marking a downbeat start to the recovery.

Factory activity was hit by slowing growth in production and customer demand, with the sub-indexes for output and new orders showing declines from February’s levels.

The sub-index for new export orders fell to 50.4 against 52.4 in February, pointing to lacklustre external demand.

Strong recovery in services

In contrast, the non-manufacturing PMI jumped to 58.2 versus 56.3 in February, reaching the highest level since May 2011 as the services sector recovered.

“The strong momentum will likely continue in the coming months, as the new order index for the services sector continued to rise,” said Dr Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

Retail sales in the first two months jumped 3.5 per cent from a year before, reversing a 1.8 per cent annual fall seen in December, raising hopes of an economic revival led by consumption as flagging global demand weakens exports.

The government’s softening tone towards the private sector is also boosting market confidence.

Alibaba Group founder Jack Ma’s return and the firm’s plans for a major revamp have been taken as a signal that Beijing’s regulatory crackdown on private business is ending.

“These policy actions will help the economy to keep the strong momentum. We think gross domestic product growth may surpass 6 per cent this year,” Dr Zhang said.

The world’s second-biggest economy set a modest target for economic growth for 2023 of around 5 per cent after it cooled to only 3 per cent in 2022, one of the weakest showings in nearly half a century. REUTERS