China’s Manufacturing Activity Contracts for 5th Straight Month Despite Policy Support

China's Manufacturing Activity Contracts for 5th Straight Month Despite Policy Support
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China’s Manufacturing Activity Contracts for 5th Straight Month Despite Policy Support

Hong Kong (AP) – China’s manufacturing sector experienced its fifth consecutive monthly contraction in February, as indicated by the latest official survey of factory managers released on Friday. This continued downturn underscores the ongoing fragility within the economy, particularly in anticipation of forthcoming annual legislative meetings, during which policymakers are anticipated to implement measures aimed at bolstering support for economic growth.

The official Purchasing Managers’ Index (PMI), a key gauge of manufacturing activity, declined to 49.1 in February from 49.2 in the preceding month. The PMI operates on a scale of up to 100, with a reading below 50 indicating contraction in the sector.

Persistent Decline in Manufacturing PMI

The manufacturing Purchasing Managers’ Index (PMI) has witnessed a decline in ten out of the past eleven months, with a sole rise noted in September.

Despite recent efforts by Beijing to fortify the economy, such as trimming a lending rate tied to home loans and slashing banks’ reserve requirements to stimulate lending, the February PMI reading remains subdued.

A separate survey conducted by financial news outlet Caixin revealed a slight increase in the manufacturing PMI, rising from 50.8 to 50.9.

Capital Economics’ Huang Zichun suggested averaging across both PMIs to provide a more comprehensive assessment of the industry’s conditions.

Stable Manufacturing Activity Amidst Holiday Impact

Commenting on the situation, she noted, “On this basis, the headline manufacturing reading remained unchanged at 50.0 and is in line with factory activity holding steady last month.”

Given that this year’s Lunar New Year holidays, a weeklong national celebration, also occurred in February, it’s possible that these readings are influenced by this period, as factories typically experience downtime.

In contrast, the non-manufacturing PMI, which assesses activity across sectors like services and construction, saw an increase to 51.4 from 50.7 in January. This marks the highest reading since September of the previous year and is likely a result of heightened consumer spending surrounding the Lunar New Year festivities.

Anticipated Economic Stimulus Focus at NPC Meetings

Beijing is anticipated to prioritize fiscal measures aimed at bolstering the economy during the upcoming National People’s Congress (NPC) meetings, scheduled to commence on March 5. The objective is to enhance consumption, stimulate investment, and restore confidence in the stock market.

Despite experiencing a brief economic upturn following the COVID-19 pandemic, the world’s second-largest economy has encountered challenges associated with an uneven recovery, compounded by a property crisis and a decelerating economy.

Additionally, China is expected to unveil its annual GDP growth target during the NPC meetings.

 

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