March 23, 2023

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Factory activity in China is staggering with its fastest growth in a decade

  • The official manufacturing PMI for February is the highest since April 2012
  • The highest non-manufacturing PMI level since March 2021

BEIJING (Reuters) – China’s manufacturing activity expanded at the fastest pace in more than a decade in February, an official indicator showed on Wednesday, dashing expectations as production surged after COVID-19 restrictions were lifted late last year.

The manufacturing purchasing managers’ index (PMI) rose to 52.6 from 50.1 in January, according to the National Bureau of Statistics, above the 50-point mark that separates expansion from contraction in activity. The PMI far exceeded analysts’ expectations of 50.5 and was the highest reading since April 2012.

The world’s second largest economy recorded one of its worst years in nearly half a century in 2022 due to the strict Covid lockdown and subsequent spread of infections. Restrictions were suddenly lifted in December as the highly transmissible Omicron spread across the country.

Global markets welcomed the big surprise in the PMI with Asian stocks and the Australian dollar reversing earlier losses, the offshore yuan and oil soaring as investors took a more optimistic view of China’s economic prospects.

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“While we need to process these numbers, we caution because there may be significant seasonal and event factors, the overall trend still points to a strong recovery at the beginning of 2023,” said Zhou Hao, an economist at Guotai Junan International.

Markets expect that the annual meeting of Parliament, which kicks off this weekend, will set economic goals and elect new chief economic officials.

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“The decent PMI readings provide a positive note for the upcoming National People’s Congress. We expect the government to carry out more supportive policies to promote economic recovery,” Zhou said.

The official PMI was released ahead of an optimistic Caixin/S&P private sector index which showed activity picking up for the first time in seven months.

The National Bureau of Statistics said in a separate statement that companies accelerated the resumption of their work and production, as the sector felt the impact of economic stabilization policies while the impact of Covid-19 receded.

While the manufacturing sector began to see more signs of recovery, it remained under pressure with factory gate prices falling in January on still-cautious domestic consumption and uncertain foreign demand.

The official non-manufacturing PMI rose to 56.3 from 54.4 in January, indicating the fastest pace of expansion since March 2021.

China’s central bank said on Friday that the overall domestic economy is expected to rebound in 2023, although the external environment remains “harsh and complex.”

The composite PMI, which includes both manufacturing and non-manufacturing activity, rose to 56.4 from 52.9.

Editing by Tomasz Janowski and Sam Holmes

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