China’s industrial activity surprises with biggest increase in a decade

By Liangping Gao and Joe Cash

BEIJING, March 1 (Reuters) – China’s manufacturing activity grew in February at the fastest pace in more than a decade, an official index showed on Wednesday, beating market expectations as output soared after the COVID-19 restrictions lifted late last year.

The Purchasing Managers’ Index (PMI) for China’s manufacturing sector rose to 52.6 points from 50.1 in January, according to China’s National Bureau of Statistics, above the 50-point mark that separates expansion and contraction of activity. The PMI comfortably exceeded analysts’ forecasts of 50.5 and was the highest reading since April 2012.

The world’s second-largest economy recorded one of its worst years in nearly half a century in 2022, due to tight restrictions imposed by COVID-19 and the subsequent spread of infections. The restrictions were lifted with a bang in December, just as the highly transmissible omicron variant of the virus was sweeping the country.

Global markets cheered China’s big surprise PMI: Asian stocks and the Australian dollar reversed earlier losses, the yuan rose and oil rallied as investors took a more optimistic view of China’s economic outlook. China.

“The strong PMI numbers partly reflect the weak starting point for the economy this year, and they should fade before long as the pace of the recovery slows,” said Julian Evans-Pritchard, chief executive. of the Chinese economy at Capital Economics.

“We were already expecting a quick rebound in the near term, but the latest data suggests that even our growth forecast of 5.5% for this year, above the median forecast, may prove too conservative.”

Markets expect the annual meeting of China’s parliament, which begins this weekend, to set economic targets and elect new top economic officials.

“The strong PMI readings offer a positive note for the upcoming National People’s Congress (China). We hope the government will put in place new supportive policies to cement the economic recovery,” said Zhou Hao, an economist at Guotai Junan. International.

The official PMI was released just ahead of an upbeat Caixin/S&P private sector index, which showed rising activity for the first time in seven months.

Companies accelerated the resumption of work and production as the sector felt the effect of economic stabilization policies, while the impact of COVID-19 faded, the Chinese bureau of statistics said in a statement. separate.

Furniture manufacturing, metal products and electrical machinery equipment all saw big improvements, with production indices and new orders in these sectors all above 60.0.

MIXED PERSPECTIVES

New export orders rose for the first time since April 2021, according to the PMI.

Meanwhile, China’s PMI index contrasted with more negative readings for factory activity in other Asian economies in February, showing conditions overseas are weak.

Overall, the outlook remains mixed as the country’s major trading partners face rising interest rates and cost pressures.

China’s manufacturing sector has been under pressure this year, with ex-factory prices falling in January, according to data released last month, due to still-cautious domestic consumption and uncertain foreign demand.

Manufacturing firms also posted higher purchase prices in the steel sector and related downstream industries, the NBS said.

The official non-manufacturing PMI rose to 56.3 from 54.4 in January, indicating the fastest pace of expansion since March 2021.

Construction activity, part of the official non-manufacturing PMI, rebounded further to 60.2 from 56.4, partly due to a sizeable increase in infrastructure spending and financing increased to help promoters complete stalled projects.

Services activity also continued to grow, with improvements in the transportation and accommodation sectors.

On Friday, China’s central bank said the domestic economy is expected to rebound broadly in 2023, although the external environment remains “bleak and complex”.

The composite PMI, which includes both manufacturing and non-manufacturing activity, fell from 52.9 to 56.4.

(Editing by Tomasz Janowski and Sam Holmes;