On March 31, 2024, a worker worked in an automobile gear manufacturing enterprise in Qingzhou Economic Development Zone, Shandong Province.
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China’s manufacturing activity expanded for the first time in six months in March, an official factory survey showed on Sunday, giving policymakers a sigh of relief even as a crisis in the housing sector remains a drag on the economy and confidence.
The official Purchasing Managers’ Index (PMI) rose to 50.8 in March from 49.1 in February, above the 50 line that separates growth from contraction and above the median forecast of 49.9 in a Reuters poll.
Despite the modest pace of growth, it was also the highest PMI reading since March last year, when momentum toward lifting strict COVID-19 restrictions began to stall.
Zhou Maohua, an analyst at China Everbright Bank, said: “From an indicator perspective, domestic supply and demand have improved, residents and business confidence are recovering, and consumption and investment willingness are increasing.”
PMI data showed new export orders turned positive, breaking an 11-month slump, but employment continued to shrink, albeit more slowly.
Recent optimistic indicators suggest the world’s second-largest economy is slowly returning to better footing, leading analysts to start revising upward their growth forecasts for this year.
Since COVID-19 restrictions were abandoned in late 2022, policymakers have grappled with an ongoing economic downturn, a deepening housing crisis, rising local government debt and weak global demand.
Consulting firm China Beige Book said in a report last week that “March data suggests the economy is about to end the first quarter strongly.” “Hiring recorded its longest-lasting improvement since late 2020. Both manufacturing and retail sectors have seen an uptick.”
However, a deep downturn in the Asian giant’s real estate sector remains a major drag on economic growth, testing the health of debt-laden local government and state bank balance sheets.
The official non-manufacturing PMI, which includes services and construction, rose to 53 from 51.4 in February, the highest reading since September.
Earlier this month, Prime Minister Li Qiang announced an ambitious 2024 economic growth target of around 5% at the annual meeting of the National People’s Congress, China’s rubber-stamp parliament.
But analysts say policymakers will need to roll out more stimulus to achieve that goal because they won’t be able to count on growth figures in 2022 coming from a lower base than in 2022.
Citigroup on Thursday raised China’s economic growth forecast for this year from 4.6% to 5.0%, citing “recent positive data and policy implementation.”
China’s State Council approved a plan on March 1 to promote large-scale equipment upgrades and consumer goods sales. The head of China’s national planners said at a press conference earlier this month that the project could generate more than 5 trillion yuan ($691.63 billion) in market demand annually.
Many analysts worry that China could begin to slide into Japan-style stagnation later this decade unless policymakers take steps to shift the economy toward household consumption and resource market allocation, and away from its past heavy reliance on infrastructure investment.
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