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Beijing’s move to rescind the zero-Covid policy and the recovery in economic activity has helped China manufacturing activity for February 2023 to mark the best growth in more than a decade. As per data published by the country’s statistics bureau, the manufacturing purchasing managers’ index (PMI) rose to 52.6 in February, the fastest pace since April 2012, from 50.1 in the previous month. A figure above 50 indicates expansion.
The figure is a surprise as market analysts polled by Reuters were expecting the PMI to post a reading of 50.5. China’s non-manufacturing PMI, which includes construction and service sector, grew to 56.3 during the month from 54.4 in January, thanks to the recovery in the services sector and construction activity.
“This set of PMI data gives the government a very good reason to set a high growth target (at the upcoming Two Sessions). Even though the recovery is on track, this year will not be easy with the central government requiring local governments to grow their economies with high-quality growth prospects in mind,” writes ING.
Will China manufacturing rebound sustain?
The statistics bureau said in a separate statement that businesses in the country accelerated the resumption of work and production, while policy support coupled with the reduced impact of Covid-19 helped the economy perform better.
“The broad-based obvious improvements for both Manufacturing and non-Manufacturing PMIs in February reflect the solid momentum of post-reopening recovery,” Citi economists said in a note.
Among sub-indices beyond the PMI, new orders reached 54.1, the highest since September 2017, and new export orders were at 52.4, the highest since March 2011. This shows strong demand from retailers. On the other hand, the job market is also making a comeback as manufacturing employment rose to 50.2, the first expansion in two years.
“With local growth prospects improving, we believe the incentive for the People’s Bank of China (PBoC) to ease monetary policy in the near-term has diminished. We now believe monetary policy settings will be left unchanged in the short-term, and we no longer believe the PBoC will lower bank Reserve Requirement Ratios (RRR) in the first quarter of this year,” says Wells Fargo in a note, but added that lifting zero-Covid rules does not eliminate the underlying vulnerabilities in China’s economy.
The official PMI data come close to the Caixin PMI survey, which showed that China manufacturing activity had risen for the first time in seven months.
“In a nutshell for February, the economy saw a faster pace of recovery following a peak in the recent wave of Covid infections as supply and demand expanded, overseas demand surged, employment started to rebound, and logistics recovered at a faster pace. The quantity of purchases also increased, while inventories dropped, and prices remained stable. Manufacturers expressed stronger confidence in future economic activity,” said Wang Zhe, Senior Economist at Caixin Insight Group.
