China’s factory activity growth falters in March due to weaker demand, slowing production

Caixin/S&P Global manufacturing purchasing managers’ index (PMI) fell to 50 last month, down from 51.6 in February
On Friday, China’s official manufacturing PMI also fell to 51.9 in March from 52.6 in February

China manufacturing

Reuters

Published: 9:58am, 3 Apr 2023

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China’s factory activity growth stalled in March, weighed by slowing production and weaker global demand and adding to uncertainty about a post-coronavirus recovery, a private sector survey showed on Monday.

The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) fell to 50 in March. That followed February’s reading of 51.6, which indicated the first monthly expansion in seven months.

The reading far missed expectations of 51.7 in a Reuters poll, and echoed slower growth in an official PMI released on Friday. The 50-point index mark separates growth from contraction on a monthly basis.

The world’s second-largest economy showed gradual recovery in the first two months of the year with a strong pickup in services sector, boosted by the lifting of years of strict virus containment measures.

The foundation for economic recovery is not yet solid. Looking forward, economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption

Wang Zhe

However, a property downturn, weaker global demand and financial uncertainty raised doubts about the strength of momentum.

“The foundation for economic recovery is not yet solid. Looking forward, economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption,” said Wang Zhe, senior economist at Caixin Insight Group.

“Only by working hard to stabilise employment, increase household income, and improve market expectations, can the government reach its goal of restoring and expanding consumption.”

Beijing has set a modest target for economic growth this year of around 5 per cent after it grew just 3 per cent last year, one of the weakest showings in nearly half a century.

The factory activity was hit by slower growth in production and demand in March with subindices both falling from the previous month.

The new export orders subindex fell to 49 after briefly swinging into growth in February, suggesting global demand remains weak.

“The Caixin manufacturing index was more downbeat than its official counterpart, especially when it came to export orders. Taken together, the surveys suggest that growth in factory activity dropped back in March amid weak foreign demand, which we think will persist in the coming months,” said Sheana Yue and Julian Evans-Pritchard, China economists at Capital Economics.

“The average of the two fell and is consistent with factory activity expanding at a slower pace last month. Given differences in the composition of the firms surveyed, the larger decline in the Caixin index suggests that smaller firms and exporters are facing the greatest headwinds amid weak foreign demand.”

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To prop up growth, China’s Premier Li Qiang last week vowed to support consumption and investment. The central bank also lowered reserve requirement ratio last month.

Chinese top officials in recent days have softened their stance toward the private sector, which cheered markets.

“The new economic team is officially taking over, we will likely see more pro-business policies going forward, even though our expectation for stimulus is low,” said Citi in a research note.