China’s advanced manufacturing “can continue to outperform” traditional manufacturing, driven by heavy policy support from Beijing, after the sector led a key monthly indicator of economic activities in March. Beijing introduced a comprehensive plan during the National People’s Congress (NPC) earlier this month to upgrade its manufacturing capabilities by 2025 via eight priority areas. China’s overall official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners – rose to 51.9 in March from 50.6 in February, according to data released by National Bureau of Statistics (NBS) on Wednesday. A reading above 50 indicates growth in sector activity, while a reading below the mark represents contraction. The higher the reading above 50, the faster the pace of expansion. Within the survey of sentiment among factory owners in the world’s second-largest economy, the readings for hi-tech manufacturing and equipment manufacturing were 53.9 and 52.9, respectively, two and one percentage points higher than the overall manufacturing PMI. The government has made it clear this is a top policy initiative in the new [five-year plan]. There are tax benefits as well as credit support Zhiwei Zhang “I expect [advanced manufacturing] to continue to outperform relative to the conventional manufacturing sector, given the policy support. The government has made it clear this is a top policy initiative in the new [five-year plan]. There are tax benefits as well as credit support,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. Beijing’s upgrade plan is focused on rare earth and special materials, robotics, aircraft engines, new energy vehicles and smart cars, high-end medical equipment and innovative medicine such as vaccines, agricultural machinery, major equipment used in shipbuilding, aviation and high-speed rail, as well as industrial applications of China’s Beidou global navigation satellite system. Its emphasis on advanced manufacturing forms an integral part of the country’s 14th five-year plan, which spells out the country’s economic and development goals for 2020-25. Manufacturing accounted for 38 per cent of China’s gross domestic product in 2020, according to official data, and is considered the backbone of the country’s industrial economy. “Authorities will accept moderately slower growth and follow targets less closely as they focus on innovation and more balanced development. Consumption-facing sectors will gain somewhat more policy support, but through gradual structural reforms rather than direct stimulus,” said a team of analysts at Eurasia Group, led by Michael Hirson. Michael Hirson , practice head China and Northeast Asia, and his team at political risk analyst Eurasia Group. “Beijing will intensify efforts to promote ‘chokepoint’ technologies and products critical to its supply chain and vulnerable to US restrictions – including semiconductors, software, advanced manufacturing, and life sciences. Consumer e-commerce firms, by contrast, remain important in the economy but are not among Xi’s strategic priorities.” Beijing does not release industrial breakdowns of PMI consistently and comprehensively, making it difficult for economists to fully analyse the health of the high-end manufacturing sector over the long term. Readings for hi-tech manufacturing and equipment manufacturing, for example, were not released in February. “PMI is mainly used as a short term indicator of economic activities. The health of advanced manufacturing requires close analysis over a long term,” said Xu Jianwei, senior China economist from French bank Natixis. In combined industrial profits data for January and February, hi-tech manufacturing increased by 49.2 per cent year on year, while equipment manufacturing rose by 59.9 per cent. Hi-tech and equipment manufacturing increased by 13 per cent and 10.2 per cent, respectively, averaged over the January-February period in 2020 and 2021, data from the NBS showed. New-energy vehicles, trucks, industrial robots, and machinery for excavation work, shovelling and transport, as well as microcomputer equipment, all had year-on-year growth rates exceeding 100 per cent. We must strive to build a modern industrial system supported by advanced manufacturing Politburo On Tuesday, China’s top-level Politburo also promoted high-quality growth of the central region of the country, which is a key base for food production, energy, manufacturing and hi-tech industries, as well as transport. The meeting, which was presided over by President Xi Jinping, cited major achievements in the economic and social development of the central region since 2012. “We must strive to build a modern industrial system supported by advanced manufacturing, focus on building a beautiful central part of green development, and focus on promoting high-level opening up in inland provinces,” the Politburo said, according to CCTV.