China’s manufacturing sector saw a glimmer of hope in March as activity expanded for the first time in six months, according to an official factory survey released on Sunday. The Purchasing Managers’ Index (PMI) rose to 50.8 in March from 49.1 in February, surpassing expectations and indicating growth in the sector.
“While the pace of growth remains modest, the uptick in the PMI suggests that domestic supply and demand are improving,” said Zhou Maohua, an analyst with China Everbright Bank. “This is accompanied by a recovery in homeowner and business confidence, as well as an increase in willingness to consume and invest.”
The positive trend extended to exports as well, with new export orders rising into positive territory for the first time in 11 months. However, the data also showed that employment continued to shrink, albeit at a slower rate.
Recent indicators point to a gradual recovery in the world’s second-largest economy, prompting analysts to revise their growth forecasts upwards for the year. “March data show the economy is poised for a strong end to Q1,” said China Beige Book, an advisory firm. “Hiring recorded its longest stretch of improvement since late 2020, and manufacturing and retail sectors have picked up.”
Despite these positive signs, China faces challenges, particularly in its property sector, which remains a significant drag on economic growth. Premier Li Qiang announced an ambitious economic growth target of around 5% for 2024 earlier this month, but analysts believe that achieving this target will require additional stimulus measures.
Citi recently raised its economic growth forecast for China for this year to 5.0% from 4.6%, citing “recent positive data and policy delivery.” The Chinese government has already approved a plan aimed at promoting large-scale equipment upgrades and boosting consumer goods sales, which could generate significant market demand.
Looking ahead, many analysts warn that China risks stagnation similar to Japan’s unless policymakers take steps to reorient the economy towards household consumption and market-allocation of resources. This would require moving away from the heavy reliance on infrastructure investments that have characterized China’s economic growth in the past.
(Source: The Economic Times | Reuters)
