Manufacturing activity in China slows for the fifth month in a row

Stay informed with free updates

Simply sign up Chinese economy myFT Digest – delivered straight to your inbox.

China's economy showed more signs of slowing momentum as factory activity slowed, increasing pressure on President Xi Jinping to do more to boost growth days before Beijing opens its major annual political event.

The country's official manufacturing PMI was 49.1 for February, according to figures released on Friday, down from a reading of 49.2 in January and in line with Reuters analysts' expectations. A reading below 50 indicates a contraction from the previous month.

The continued weakness in China's manufacturing PMI – which has been below 50 monthly since March excluding September – comes as Beijing is scheduled to open the annual meeting of its parliament, the National People's Congress, on Tuesday, where it will announce its decisions. Economic growth and fiscal stimulus goals this year.

The pessimistic reading will add to the pressure on policymakers to announce stronger stimulus measures, with the Chinese Communist Party's leadership body, the Politburo, indicating this week that more may be needed, although few expect Beijing to announce a “bazooka” package. Typical of the past. .

“Proactive fiscal policy should be appropriately intensified,” the Politburo said on Thursday, according to China’s official Xinhua news agency.

“Overall, production and consumption data from February suggest that businesses and consumers remain cautious,” said Larry Hu, chief China economist at Macquarie Group. He warned that the month has fewer working days than usual due to the Lunar New Year holiday, making it a less reliable indicator of the health of the economy.

Analysts expect Beijing to announce a 2024 growth target of about 5 percent. This would be the same as last year's number, which was the lowest in decades. But this will be more difficult to achieve this year due to the absence of a low base effect from the coronavirus pandemic, which dampened growth in 2023.

Policymakers are also facing a multi-year slowdown in the real estate sector, which they are trying to offset by focusing on advanced manufacturing and infrastructure investment.

“We must vigorously promote the construction of a modern industrial system and accelerate the development of new productive forces,” the Politburo said.

The non-manufacturing index, which covers services and construction, painted a stronger picture of consumption. The measure rose to 51.4 in February from 50.7 the previous month, according to the National Bureau of Statistics.

The National Bureau of Statistics said that while activity in the construction industry fell slightly and real estate activity contracted, other areas such as catering, transportation and entertainment were in a “boom” range of over 55, as millions traveled during the Lunar New Year holiday.

But analysts warned that consumer and investor confidence remained relatively low.

Before the data was published, Nomura Bank's chief China economist, Ting Lu, said that the economic indicators for January and February combined should show a fuller picture of the state of the Chinese economy.

“Key growth indicators are likely to show a broad-based deceleration in their year-on-year growth rates in January and February compared to December last year, as the base impact from the Covid exit wave in late 2022 subsides,” he said. .