The factory and manufacturing activity in China shrinks for the 5th straight time in the month of February, according to an official survey released on Friday. The continuous decline in the manufacturing activity has raised pressure on Beijing to roll out a comprehensive stimulus package before a key annual meeting of the parliament next week.
The official manufacturing Purchasing Managers Index (PMI) report, which is compiled and released by the National Bureau of Statistics, fell from 49.2 to 49.1 in the month of February, with a sizable drop in the output component.
It remained below the 50-mark separating growth from contraction and in line with the forecast conducted by Reuters.
Some of the inactivity can be attributed to seasonal factors like Lunar New Year which falls in February, as workers return home for holidays and factories remain shut for many days.
However, Caixin/S&P 500 Global released a survey just after the official PMI, showing that the manufacturing activity increased steadily amid high production and new orders in the month of February.
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The bleak state of factory activity in China
China factory and manufacturing activity shrinks for the 5th time in a row in the month of February and has been in contraction since a year now, with the exception of September last year.
The PMIs from previous months are highlighting an uneven economic recovery, which is creating pressure on the authorities as the market is strongly expecting a bolder stimulus package and stringent measures to safeguard China’s long term growth.
Ting Lu, chief economist at Nomura overlooking the affairs of China while forecasting the first quarter GDP growth of China said that, “we expect the weak growth momentum to extend into March, while the GDP growth to remain at 4.0% year-on-year, which is much slower than the 5.2% pace clocked in the fourth quarter of last year.”
China won’t be releasing its full year growth target for the year 2024 until next Tuesday at a parliamentary meeting, but policy experts expect that Beijing will continue a similar growth target as last year of around 5%.
The disappointing state of economic recovery of the world’s second largest economy and the largest industrial country after COVID-19 has raised doubts about the foundations of its economic model. This has also raised stakes for the government to take necessary actions and change the course of the economy.
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The Measures Taken
Despite official PMI falling consecutively for the 5th consecutive month and new export orders shrinking for 11 months straight, there is definitely some positive news for the world’s second largest economy.
The good thing is that the official non-manufacturing PMI which includes construction and services increased from 50.7 to 51.4 points in February, pointing to the highest reading since September last year thanks to an increased activity during Lunar holidays.
However, the construction activity remained low and contracted further by 0.4% as property sectors remained under a strong pressure.
Zichun Huang, an economist at Capital Economics said that, “although the survey readings remain below historical averages, this is likely distorted by sentiment effects – survey-based measures have underperformed the hard data recently.”
Policymakers are pledging to take further measures after the steps taken in June only had a modest effect, like the People’s Bank of China had cut the reserve requirement ratio by 50 base points, releasing 1 trillion yuan or $139.03 billion in liquidity.
“We expect a modest recovery in China’s growth momentum thanks to policy support, although this rebound appears fragile and may not last once policy support is scaled back.”
($1 = 7.1925 Chinese yuan renminbi)
