China's Manufacturing Sector Contracts for Second Month, Falls Short of Expectations

Impact of the Lunar New Year Holiday
Private Survey Indicates Phase of Expansion

Last month, China's manufacturing sector continued to contract for the second consecutive month due to the impact of the country's biggest holiday, the Spring Festival (Chunjie, Lunar New Year) holiday.

On March 4, China's National Bureau of Statistics announced that the Manufacturing Purchasing Managers' Index (PMI) for February was recorded at 49.0, down 0.3 points from the previous month's 49.3.

A porcelain factory in Hebei Province, China. Photo by AP Yonhap News Agency

This figure is slightly below the median expert forecast of 49.1 compiled by Reuters and marks the lowest level in four months.

The PMI, based on surveys of corporate purchasing managers, is an indicator that reflects economic trends in the relevant sector. A reading above 50 indicates economic expansion, while one below 50 signals contraction. From April to November last year, the PMI remained below the baseline of 50 for eight consecutive months before making a surprise rebound to 50.1 in December. However, it returned to contraction territory in January and February this year.

By company size, large enterprises recorded a PMI of 51.5, up 1.2 points from the previous month. In contrast, medium-sized and small enterprises posted PMIs of 47.5 and 44.8, respectively, down 1.2 points and 2.6 points from the previous month.

By sector, all indices remained below 50, indicating contraction: the production index (49.6, down 1.0 point from the previous month), new order index (48.6, down 0.6 point), raw material inventory index (47.5, up 0.1 point), employment index (48.0, down 0.1 point), and supplier delivery time index (49.1, down 1.0 point).

The non-manufacturing PMI, which covers construction and service industries, rose by 0.1 point to 49.5 from 49.4 in the previous month, but remained in contraction territory.

The composite PMI, which combines manufacturing and non-manufacturing, was recorded at 49.5, down 0.3 points from the previous month's 49.8.

Huo Lihui, Chief Statistician at the National Bureau of Statistics, explained, "The extended Spring Festival holiday continued into late February, affecting the production and operations of manufacturing firms." He added, "On the other hand, during the holiday, the business activity index for service sectors such as accommodation, dining, culture, and sports increased."

However, according to Reuters, economists pointed out that the weak PMI cannot be attributed solely to the Spring Festival. This is because seasonal adjustments were made to reflect the closure of factories during the nine-day holiday from February 15 to 23.

Meanwhile, the manufacturing PMI for February published by the Chinese private research institution Ruitinggou (formerly Caixin) rose by 1.8 points to 52.1 compared to January's 50.3. The Ruitinggou services PMI for February jumped 4.4 points to 56.7 from 52.3 in January.

The National Bureau of Statistics survey mainly targets state-owned enterprises, large firms, and mid-sized companies, while the Ruitinggou survey focuses primarily on Chinese exporters and small to medium-sized enterprises.

On this day, the annual political event known as the 'Two Sessions' (Lianghui—the National People's Congress and the Chinese People's Political Consultative Conference) opens in China. On the morning of March 5, the National People's Congress will announce the country's economic growth target and the direction of economic policy for this year.

Zhang Zhiwei, Chief Economist at Pinpoint Asset Management, stated, "If economic activity slows further in the coming months, the government is expected to moderately increase investment to ease pressure on the economy," adding, "The message from the National People's Congress should help clarify the policy outlook."

This content was produced with the assistance of AI translation services.