China’s manufacturing sector continued to expand in February but at slowest pace since March, new export orders slipped back into contraction
China’s manufacturing sector continued to expand in February but at slowest pace since March, new export orders slipped back into contraction

China’s manufacturing sector continued to expand in February but at slowest pace since March, new export orders slipped back into contraction

 

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China’s economic recovery continued in February, but at the slowest pace since May last year, with all major sectors posting their lowest growth rates since last spring.

The official manufacturing purchasing managers’ index (PMI), a survey of sentiment among factory owners, fell to 50.6 in February, compared to 51.3 in January and accelerating for the third straight month, according to data released by the National Bureau of Statistics (NBS) on Sunday.

The reading was below the median forecast of 51.1 in a Bloomberg survey, and was the lowest reading since March last year. A reading above 50 indicates growth in sector activity, while a reading below the mark represents contraction. The higher the reading above 50, the faster the pace of expansion.

“The Spring Festival holidays, which fell in the middle of February, had a great impact on the production and business of enterprises, reducing the vitality of the manufacturing sector,” said Zhao Qinghe, senior statistician at the NBS. 

Zhao said the expansion of both production and demand in the manufacturing sector weakened in February, and the vitality of both imports and exports declined. The sub-index for production fell to 51.9 in February from 53.5 in the prior month, and the sub-index for new orders declined to 51.5 from 52.3 in January, showed the data.

In particular, the sub-index for new export orders was 48.8 in February, down from 50.2 in January, slipping back into contraction after months boosted by overseas demand. The sub-index for imports was 49.6, down slightly from 49.8 in January.

A gauge for manufacturers’ purchase prices of raw materials was 66.7 in February, staying above 60 for the fourth consecutive month. The sub-indices tracking raw material purchase prices in the oil, coal and fuel industries, metal smelting industrial as well as electrical and mechanical equipment sectors all exceeded 70.

In the February survey, about 53.6 per cent of manufacturers said that the prices of raw materials are too high, marking the highest share since 2018.

A sub-index for employment in the official PMI stood at 48.1 in February, down from January’s 48.4 and marking the lowest since March 2020 as companies laid off more workers and at a faster pace.

China’s non-manufacturing PMI, a gauge tracking sentiment in the service and construction sectors, fell to 51.4 in February from January’s reading of 52.4, compared to analysts’ prediction of 52.1. The non-manufacturing index was also the lowest since May 2020, which was second only to the all-time low of 35.7 reported in February last year.

Within the non-manufacturing PMI, the sub-index for the construction sector fell to 54.7 from 60 in January, while the service sector business activity index fell to 50.8 from 51.1.

The official composite PMI, which covers both the manufacturing and non-manufacturing indices, dropped to 51.6 in February from 52.8 in January.

Medium and small-sized companies were more affected by the seasonal effects of the Spring Festival holiday, with the sub-indices for activity among the two types of firms falling to 49.6 and 48.3 respectively, from 51.4 and 49.4 in the previous month. The sub-index for large-sized companies increased slightly to 52.2 from 52.1 in the previous month.

Zhao also pointed to a labour shortage in some industrial sectors. “At present, some manufacturing companies have a labour gap, and the pressure on labour costs has increased,” he said. In the February survey, 36.2 per cent of companies said their labour costs were high and 18.3 per cent of companies said they were experiencing a shortage of labour supply.

The employment indices for both manufacturing and non-manufacturing sectors showed bigger contractions in February than in January.

“Due to the Lunar New Year holiday and weather factors, the progress of projects in the construction industry has slowed,” Zhao said, explaining the sharp drop in the construction sector index.

He also said that despite the overall slowdown in service sector activity, consumer spending related-sectors grew in February. “The business activity indices of the retail, catering, entertainment and other sectors closely related to household consumption are all in the expansion range and higher than the previous month, with business activities relatively active,” he said.

“The manufacturing PMIs surpassed our expectation, and shows that domestic demand can continue to support the manufacturing sector. This demand came from the technology sector, commodity sector and the construction sector,” according to the latest note from ING Bank.

As the latest PMI figures showed that China’s economic momentum is weakening and the real demand is still insufficient, the authorities may not significantly tighten monetary policy in the short term, said Tao Chuan, chief analyst at Soochow Securities.

The uptrend in the recent rise in prices is expected to continue and the growth of producer price index and consumer price index may accelerate, said Wang Qing, chief macro analyst at the Golden Credit Rating International.