Chinese Manufacturing Grows at Fastest Pace in More Than a Decade

China’s manufacturing activity grew at its fastest pace in more than a decade in February, surpassing expectations as production soared 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 forecasts of around 50.5 and reached its highest mark since April 2012. China had recorded one of its worst years in 2022 over nearly half a century, primarily because of strict Covid-19 lockdowns and subsequent widespread infections. The curbs were abruptly lifted in December as the highly transmissible Omicron spread across the country.

Asian markets have seen an upshot following the better than expected figures as stocks reverse earlier losses. Investors have started to take more optimistic view on China’s economic recovery.

Still, the high PMI readings were partly the result of the economy’s weak starting point coming into this year and could drop back as the pace of the recovery slows.

The latest data is even above the optimistic expectations of a rapid short term rebound. Forecasts of 5.5% growth this year may prove too conservative.

Markets expect the annual meeting of parliament, which kicks off this weekend, will set economic targets and elect new top economic officials. The PMI figures will provide a positive note for the upcoming meeting of the National People’s Congress. The government is expected to roll out further supportive policies to bolster economic recovery.

The official PMI came out just before an upbeat private sector index, which showed activity rising for the first time in seven months.

Businesses accelerated their resumption of work and production, as the effect of economic stabilization policies was felt by the sector while the impact of COVID-19 receded.

Furniture manufacturing, metal products and electrical machinery equipment saw big improvements, with production and new orders indexes in these industries all above 60.0.

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

The country’s PMI contrasted with readings from other Asian economies, which signal a downbeat factory activity for February.

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

The official non-manufacturing purchasing managers’ index (PMI) rose as well, from 54.4 in January to 56.3, 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 boost to infrastructure spending and increasing financing to help developers complete stalled projects.

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

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

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

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