An official factory survey released on Sunday revealed that China’s manufacturing activity increased in March for the first time in six months, providing policymakers with some respite even as the country’s economy and confidence continue to be negatively impacted by the real estate crisis.

The official purchasing managers’ index (PMI) increased from 49.1 in February to 50.8 in March, surpassing a consensus prediction of 49.9 in a Reuters poll and rising above the 50-point threshold that divides growth from contraction.

The second-largest economy in the world appears to be gradually regaining its footing, as indicated by recent positive indications, which has led economists to raise their growth projections for the year. Following China’s withdrawal of its stringent COVID restrictions in late 2022, policymakers have struggled with ongoing economic recession.

“March data show the economy is poised for a strong end to Q1,” China Beige Book, an advisory firm, said in a note last week. “Hiring recorded its longest stretch of improvement since late 2020. Manufacturing picked up, as did retail.”

But a severe downturn in the Asian behemoth’s real estate market continues to be a significant growth inhibitor, putting the soundness of the balance sheets of state-owned banks and highly indebted local governments to the test.

The official PMI for non-manufacturing, which covers construction and services, increased to 53 in February from 51.4 in February, which was the highest figure since September.

During the annual meeting of the National People’s Congress, China’s rubber-stamp parliament, earlier this month, Premier Li Qiang outlined an ambitious goal of approximately 5% economic growth by 2024.

However, experts predict that in order to meet that goal, officials will have to provide a lot more stimulus because they will be unable to rely on the weak statistical foundation of 2022, which distorted the growth data for 2023.

Citi increased its economic growth prediction for China to 5.0% this year from 4.6% on Thursday, citing “recent positive data and policy delivery”.

On March 1, the Chinese cabinet adopted a plan designed to encourage consumer goods sales and large-scale equipment upgrades. At a press conference earlier this month, the director of the nation’s state planner stated that the plan may create market demand worth over 5 trillion yuan ($691.63 billion) yearly.

Many observers are concerned that unless officials take action to shift the economy away from the strong reliance on infrastructure spending seen in the past and towards household consumption and market-allocation of resources, China may flirt with stagnation like to that of Japan later this decade.

(Adapted from EconomicTimes.com)

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