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China's economy gained momentum in February, suggesting the government's pro-growth policies have started to kick in, although small firms are still struggling.
The official manufacturing purchasing managers' index rose to 50.2, the National Bureau of Statistics said Tuesday, beating the median estimate of 49.8 in a Bloomberg survey of economists. The non-manufacturing gauge, which measures activity in the construction and services sectors, increased to 51.6, above the consensus forecast. The 50-level separates expansion from contraction.
Manufacturing activity at the beginning of each year is usually distorted by the week-long Lunar New Year holidays, which fell mostly in February this year. Many businesses and factories shut down and people traveled back to their hometowns for family gatherings during the period, although virus restrictions in parts of the country prompted some to remain in the cities where they work.
“Production in the manufacturing industry gradually returned to normal after the Spring Festival,” Zhao Qinghe, an NBS senior statistician, said in a statement. “Government policies unveiled recently to promote steady economic and industrial growth also led companies' business confidence to improve further.”
The acceleration in China's activity came along with broad improvement in PMIs in Southeast Asia last month as nations overcame omicron-led virus outbreaks and enjoyed resurgent demand around the Lunar New Year holiday. The rest of North Asia, meanwhile, continued to grapple with material shortages, forcing factories to reduce production.
Struggling Small Firms
New orders placed at Chinese manufacturers picked up in February and factory managers reported stronger expectations for business activity in coming months, NBS data show. Input and output prices also gained, suggesting inflation pressures may rise.
New export orders increased to 49 in February from 48.4 in the previous month. While trade was stable in the first two months of the year, there's a lot of challenges for exporters, the Commerce Minister Wang Wentao told reporters Tuesday in Beijing.
“On the demand side, the global pandemic still continues, and the recovery momentum is fragile,” he said, while “on the supply side, the supply of raw material and commodities has not returned to normal, and bottlenecks in the supply chain has not been alleviated, and they are unlikely to be alleviated in the short term.”
The improvement in the PMI came mainly from medium and large businesses, while activity at small firms deteriorated to the weakest since February 2020.
What Bloomberg's Economists Say...
“The surprise rises in China's February purchasing managers' indexes suggest policy support is kicking in -- cushioning the slowdown in growth. Another surprise -- the demand side strengthened more than the production side.” However, “small private firms continue to struggle. The sustainability of the government-driven recovery remains to be seen.”
-- Chang Shu and Eric Zhu
See here for full note
Beijing will likely tailor its financial support toward small businesses, said Xing Zhaopeng, senior China strategist at Australia and New Zealand Banking Group.
“The authorities will place more emphasis on small and medium-sized enterprises in our view, so policy support will be targeted and measured through fiscal and industrial policies going forward, instead of monetary easing,” he said.
The government shifted to easing mode in the second half of last year as economic momentum faltered under a property downturn and sporadic virus outbreaks. The People's Bank of China has cut interest rates, reduced the amount of cash banks must hold in reserve, and boosted credit expansion in the economy.
The Politburo, the Communist Party's top decision making body, vowed last week to strengthen macroeconomic policies to stabilize the economy this year, suggesting more support could be unveiled at the National People's Congress that kicks off this week. In a post on Monday, the PBOC pledged to keep monetary policy flexible and responsive to changing economic conditions.
The Caixin Manufacturing PMI, a separate private survey focused more on smaller, export-oriented businesses, also showed mild improvement in February. The index gained to 50.4, beating the median forecast of 49.1 in a Bloomberg survey of economists.
Chinese stocks are set for their third straight day of gains on Tuesday. The benchmark CSI 300 Index rose as much as 0.8% shortly after the official PMI data release.
A set of earliest available indicators tracked by Bloomberg suggested that the economy continued to stabilize at subdued levels in February with several underlying measures worsening, pointing to an uncertain growth outlook that may require more fiscal and central bank support in coming months.
Other key highlights from the PMI data:
- The sub-indices for manufacturing and non-manufacturing employment improved, but remained below the 50-mark, signaling an on-going contraction in jobs
- The construction sub-index climbed to 57.6
©2022 Bloomberg L.P.
With assistance from Bloomberg
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