China’s factory activity surprises with fastest growth in a decade

BEIJING, March 1 (Reuters) – China’s manufacturing activity expanded at the fastest pace in more than a decade in February, an official index showed on Wednesday, beating expectations as output rose after the lifting of COVID-19 restrictions late last year.

The manufacturing purchasing managers’ index (PMI) shot up to 52.6 from 50.1 in January, according to China’s National Bureau of Statistics, above the 50-point mark that separates expansion and contraction in activity. The PMI far exceeded an analyst forecast 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 strict covid lockdowns and subsequent widespread infections. Curbs were abruptly lifted in December as the highly portable Omicron spread across the country.

Global markets cheered a big surprise in Asian share PMIs and the Australian dollar reversing earlier losses, the offshore yuan rising and oil rallying as investors took a more optimistic view of China’s economic outlook.

“The high PMI readings partly reflect the economy’s weak starting point entering the year and are likely to fall back before long as the pace of recovery slows,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

“We had already expected a quick rebound in the near term, but the latest data suggests that even our above-consensus forecasts for growth of 5.5% this year may prove too conservative.”

Markets expect the annual meeting of parliament, which starts this weekend, will set economic targets and elect new top economic officials.

“The decent PMI readings set a positive note for the upcoming National People’s Congress. We expect the government to roll out further support policies to cement the economic recovery,” said Zhou Hao, economist at Guotai Junan International.

The official PMI came out just before an upbeat Caixin/S&P private sector index that showed activity increasing for the first time in seven months.

Companies accelerated their resumption of work and production, as the effects of economic stabilization policies were felt by the sector while the impact of COVID-19 subsided, NBS said in a separate statement.

Furniture manufacturing, metal products and electrical machinery saw big improvements, with production and order indices in these industries above 60.0.

MIXED VIEWS

New export orders rose for the first time since April 2021, the PMI showed.

At the same time, China’s PMI contrasted with more downbeat factory activity readings from other Asian economies for February, showing that conditions abroad were weak.

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

China’s manufacturing sector had been under pressure this year with factory prices falling in January, data showed last month, due to continued cautious domestic consumption and uncertain overseas demand.

Manufacturing companies have also seen rising procurement prices in steel and related downstream industries, NBS said.

The official non-manufacturing purchasing managers’ index (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, picked up further, standing at 60.2 from 56.4, partly due to the resulting increase in infrastructure spending and increasing funding to help developers complete stopped projects.

Service activity also continued to increase with improvements in the transport and accommodation sectors.

On Friday, China’s central bank said the domestic economy was expected to pick up again in 2023, although the external environment remained “severe and complex”.

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

Editing by Tomasz Janowski and Sam Holmes

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