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China’s Manufacturing Sector Sees First Growth in Six Months, Offering Hope Amidst Economic Challenges

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Positive Sign for Chinese Economy

The official purchasing managers’ index (PMI) for China’s manufacturing sector rose to 50.8 in March from 49.1 in February. This marks the first expansion in six months, surpassing the 50-mark that separates expansion from contraction. The result exceeded the median forecast of 49.9 in a Reuters poll, offering a glimmer of hope amidst a challenging economic landscape.

Despite the modest pace of growth, this reading represents the highest PMI since March of the previous year. The momentum gained from the easing of stringent COVID-19 restrictions last year played a role in this gradual but significant improvement.

Analyst Zhou Maohua from China Everbright Bank noted improvements in domestic supply and demand, along with recovering confidence among homeowners and businesses. There is also a rise in willingness to consume and invest, indicating a positive sentiment among consumers and investors.

Export Orders Surge, But Employment Figures Lag

While new export orders showed a positive trend after an 11-month decline, employment numbers continued to shrink, albeit at a slower rate, according to the PMI data. Despite this, recent encouraging indicators suggest that China’s economy, the second-largest in the world, is gradually regaining stability.

Since the relaxation of COVID-19 restrictions in late 2022, policymakers have grappled with persistent economic challenges stemming from a housing crisis, mounting local government debts, and weakened global demand.

Caution Amid Progress

China Beige Book, an advisory firm, highlighted that the March data indicates a strong conclusion to the first quarter of the year. Factors such as improved hiring and a boost in manufacturing and retail activities are contributing to a more optimistic outlook.

However, the downturn in China’s property sector continues to act as a significant impediment to overall growth. This situation poses challenges for heavily indebted local governments and state-owned banks, reflecting the delicate balance policymakers must maintain.

Future Economic Outlook and Policy Measures

China’s official non-manufacturing PMI, which encompasses services and construction, also displayed positive movement, rising to 53 in March from 51.4 in February, marking the highest reading since September.

Premier Li Qiang’s announcement of an ambitious 2024 economic growth target of around 5% underscores the government’s aspirations. However, analysts anticipate the necessity for additional stimulus measures to achieve this target, given the absence of the advantageous statistical base seen in 2022 affecting growth data in 2023.

Financial institution Citi recently adjusted its economic growth forecast for China to 5.0% from 4.6%, citing favorable data trends and effective policy implementation. China’s cabinet has also approved a plan to drive significant equipment upgrades and boost consumer goods sales, signaling a proactive approach to stimulate the economy.

While positive developments are emerging, concerns linger about the potential for China to face Japan-style stagnation in the coming years. Analysts emphasize the importance of reorienting the economy towards increased household consumption and more market-driven allocation of resources, steering away from the past heavy emphasis on infrastructure investments.

As China navigates these complex economic waters, policymakers continue to seek a delicate balance between growth aspirations and structural reforms, recognizing the need for sustainable and inclusive development strategies.

Reporters contributed to this article: David Kirton in Shenzhen, Joe Cash in Beijing, and Jing Xu in Beijing.

Contact [email protected] for additional information and inquiries.

The views expressed in this article are solely those of the author and do not reflect the opinions of Nasdaq, Inc.

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