Expansion in manufacturers’ output and new orders accelerated last month, while external demand also picked up, pushing the gauge for new export orders to its highest level since February 2023.

Businesses’ confidence for the year ahead rose to its highest point since April 2023, but companies were cautious about adding employees, with the subindex remaining negative since August.

China’s factory activity hits 1-year high in latest sign of economic recovery

“We think it makes sense to average across both PMIs to gauge conditions in industry. On this basis, the headline manufacturing reading increased substantially from 50 to 51,” said analysts at Capital Economics.

“The breakdown shows a sizeable increase in the output component. And export orders rose to a 13-month high, pointing to improved external demand.

“The overall new orders component also climbed to its highest level since April, suggesting some improvement in domestic demand, too.”

2. Services continue to expand

China’s official non-manufacturing PMI – a measure of sentiment in the service and construction sectors – rose to 53 in March from 51.4 in February, rising for the fourth straight month.

Within the non-manufacturing PMI, the subindex for the construction sector rebounded to 56.2 in March from 53.5 in February, while the service sector business activity index climbed to 52.4 from 51.

The pace of new business expansion was the fastest since December due to improving underlying demand and efforts to boost new orders.

3. Composite PMIs hit highest levels since May

China’s official composite PMI – a combination of manufacturing and non-manufacturing indices – rose to 52.7 in March from 50.9 in February, reaching its highest level since May.

And taken with the upbeat Caixin manufacturing PMI, the Caixin/S&P’s composite PMI rose to 52.7 last month from 52.5 in February, also hitting its highest reading since May.

“Growth in supply and demand in both the manufacturing and services sectors accelerated slightly, with improved exports and sustained market optimism. However, employment in both sectors continued to contract, while input and output prices remained low, indicating that sluggish demand persisted,” said Wang Zhe, senior economist at Caixin Insight Group.

4. Economy likely to slow again as policy support eases

The PMI data in March provided more evidence that parts of China’s economy are gaining momentum in the first quarter.

But analysts cautioned the increases could be a temporary bump from stimulus policies, with economist Sarah Tan at Moody’s Analytics saying that it was “too soon to let our guards down”, and that “for now, we will take March’s PMI improvement as a win”.

“The sizeable rises in the PMIs in March are consistent with improved economic momentum and/or the easing of sentiment effects that have weighed on the surveys recently,” said analysts at Capital Economics.

“Either way, they add to wider evidence of a stimulus induced pickup in activity. We think this recovery will continue in the near-term, but won’t prove durable and that the economy will be weakening again by year-end.”