Factory activity in China is staggering with its fastest growth in a decade

BEIJING (Reuters) – China’s manufacturing activity expanded at the fastest pace in more than a decade in February, an official indicator showed on Wednesday, dashing expectations as production surged after COVID-19 restrictions were lifted late last year.

The manufacturing purchasing managers’ index (PMI) rose to 52.6 from 50.1 in January, according to China’s National Bureau of Statistics, above the 50-point mark that separates expansion from contraction in activity. The PMI far exceeded analysts’ expectations of 50.5 and was the highest reading since April 2012.

The world’s second largest economy recorded one of its worst years in nearly half a century in 2022 due to the strict Covid lockdown and subsequent spread of infections. Restrictions were suddenly lifted in December as the highly transmissible Omicron spread across the country.

Global markets welcomed the big surprise in the PMI with Asian stocks and the Australian dollar reversing earlier losses, the offshore yuan and oil soaring as investors took a more optimistic view of China’s economic prospects.

“The higher PMI readings partly reflect the weak starting point for the economy coming this year and are likely to ease before long as the pace of recovery slows,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

“We were already expecting a quick rebound in the near term, but recent data suggests that even our above-consensus forecast for growth of 5.5% this year may be too conservative.”

Markets expect that the annual meeting of Parliament, which kicks off this weekend, will set economic goals and elect new chief economic officials.

“The decent PMI readings provide a positive note for the upcoming National People’s Congress. We expect the government to undertake more supportive policies to promote economic recovery,” said Zhu Hao, economist at Guotai Junan International.

The official PMI was released ahead of an optimistic Caixin/S&P private sector index which showed activity picking up for the first time in seven months.

The National Bureau of Statistics said in a separate statement that companies accelerated the resumption of their work and production, as the sector felt the impact of economic stabilization policies while the impact of Covid-19 receded.

The manufacturing of furniture, metal products, and electrical machinery equipment has witnessed significant improvements, with the production indexes and new orders in these industries all exceeding 60.0.

Mixed outlook

The PMI showed new export orders rose for the first time since April 2021.

At the same time, China’s Purchasing Managers’ Index contrasted with more downbeat factory activity readings from other Asian economies for the month of February, suggesting that conditions overseas were sluggish.

More broadly, the outlook remains mixed as the country’s major trading partners deal with rising interest rates and cost pressures.

Data last month showed that China’s manufacturing sector has been under pressure this year with factory gate prices falling in January, due to still cautious domestic consumption and uncertain foreign demand.

The National Bureau of Statistics said that manufacturing companies also saw a rise in purchase prices in steel and related manufacturing industries.

The official non-manufacturing PMI rose to 56.3 from 54.4 in January, indicating the fastest pace of expansion since March 2021.

Construction activity, which is part of the official non-manufacturing PMI, rose further, to 60.2 from 56.4, in part due to the resulting boost in infrastructure spending and increased funding to help developers complete stalled projects.

Services activity also continued to pick up with improvements in the transportation and accommodation sectors.

China’s central bank said on Friday that the overall domestic economy is expected to rebound in 2023, although the external environment remains “harsh and complex.”

The composite PMI, which includes both manufacturing and non-manufacturing activity, rose to 56.4 from 52.9.

Editing by Tomasz Janowski and Sam Holmes

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