According to official statistics released on Friday, China’s manufacturing activity grew more slowly in March, raising concerns about the depth of a post-COVID factory recovery amid weaker global demand and a slump in the real estate market.

After China’s zero-COVID policy was lifted in December, the services sector was stronger and activity grew at the quickest rate in almost 12 years, boosting travel, lodging, and construction.

According to data from the National Bureau of Statistics (NBS), the official manufacturing purchasing managers’ index (PMI) was 51.9, up from 52.6 in February, and above the 50-point threshold that distinguishes monthly activity expansion from contraction.

That marginally outperformed economists’ forecasts of 51.5, according to a Reuters poll, and it caused the yuan to appreciate versus the dollar.

The growth rate in February was the fastest in almost a decade.

With the conclusion of the COVID-19 disruptions, consumption and infrastructure investment drove a resurgence in China’s economic activity in the first two months of 2023, and retail sales turned back toward growth.

The good figures demonstrated that China’s economy has entered a “sweet spot” following the conclusion of property tightening measures and the zero-COVID policy, according to Nomura economists.

“However, amid rapidly worsening geopolitical tensions and financial concerns outside of China, this may not last long,” they added in a note.

Although the rate of decline is slowing, new home sales are still down and exports are still not strong.

Businesses confront difficulties such as poor demand, limited capital availability, and high operational costs, and NBS stated in an accompanying statement that more has to be done to strengthen the economic recovery’s foundations.

China’s central bank unexpectedly reduced the amount of cash that banks must retain as reserves this month for the first time this year in an effort to assist the recovery.

While consumer and business mood is beginning to improve, the manufacturing sector is still struggling due to weak global demand and persistently high costs.

Any repercussions from the current global financial sector confidence crisis could also have an impact on consumer demand for Chinese goods, putting more pressure on producers.

The first two months of the year saw a worsening decline in earnings for Chinese industrial enterprises, according to official figures released this week, signaling a gloomy start to the recovery.

Slowing growth in production and consumer demand had a negative impact on factory activity, with the output and new orders sub-indices declining from February’s levels.

The new export order sub-index dropped from 52.4 in February to 50.4 now, indicating weak external demand.

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

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

Retail sales increased 3.5% in the first two months compared to the same period last year, reversing a 1.8% annual decline reported in December. This raises optimism for an economic recovery driven by consumption as weakening exports are a result of faltering global demand.

Market confidence is being boosted by the government’s softer stance toward the private sector.

The return of Alibaba Group founder Jack Ma and the company’s plans for a significant redesign have been interpreted as signs that Beijing’s regulatory crackdown on private enterprise is coming to an end.

“These policy actions will help the economy to keep the strong momentum. We think GDP growth may surpass 6% this year,” Zhang said.

After cooling to barely 3% last year, one of the lowest performances in over 50 years, the second-largest economy in the world set a modest goal for economic growth this year of approximately 5%.

(Adapted from TheFinancialExpress.com)

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