China’s manufacturing sector has witnessed a resurgence, marking its first growth in six months, according to an official factory survey released on Sunday. This development offers a glimmer of hope for policymakers amidst a persistent property sector crisis and economic uncertainties.
The official Purchasing Managers’ Index (PMI) climbed to 50.8 in March from 49.1 in February, surpassing expectations and indicating growth after a prolonged contraction. This modest yet significant growth is the highest recorded since March of the previous year when the economy began to feel the effects of easing COVID-19 restrictions.
Analyst Zhou Maohua from China Everbright Bank noted, “Domestic supply and demand have improved, alongside recovering homeowner and business confidence, leading to an increase in consumption and investment willingness.”
While new export orders saw a positive upturn, breaking an eleven-month downward trend, employment continued to decline, albeit at a slower pace, as indicated by the PMI data.
Recent optimistic indicators suggest a gradual improvement in the world’s second-largest economy, prompting analysts to revise their growth forecasts upwards for the year. Despite challenges such as the ongoing property sector slump and mounting local government debts, the economy appears poised for a strong finish in the first quarter of the year.
However, the sluggish property sector continues to weigh heavily on growth, posing challenges for local governments and state-owned banks.
The non-manufacturing PMI, which encompasses services and construction, also rose to its highest level since September, indicating broader economic recovery.
Premier Li Qiang unveiled an ambitious economic growth target of around 5% for 2024 at the National People’s Congress earlier this month. Analysts caution that achieving this target may require further stimulus measures due to the absence of the favorable statistical base seen in 2022.
Citi recently raised its growth forecast for China to 5.0% for the year, citing positive data and policy initiatives. China’s cabinet has approved a plan aimed at bolstering equipment upgrades and consumer goods sales, which could generate significant market demand.
Despite recent progress, concerns linger among analysts about the risk of stagnation unless policymakers prioritize reforms to promote household consumption and market-driven resource allocation over infrastructure investments.
