China’s manufacturing activity experienced significant growth in March, with the Caixin/S&P Global manufacturing PMI reaching 51.1, the highest in 13 months. This expansion was driven by an increase in new orders from both domestic and international customers, as well as a boost in business confidence to an 11-month high. The data also exceeded analysts’ expectations and marked the fifth consecutive month of expansion, indicating a strong start to the year for the Chinese economy.
Following positive export and retail sales data, China’s official factory data also showed signs of improvement. The official purchasing managers’ index (PMI) rose to 50.8 in March from 49.1 in February, marking the first expansion in six months. This positive trend offers some relief to policymakers, even as challenges in the property sector continue to weigh on overall economic performance and confidence.
In response to the encouraging economic data, Citi revised its forecast for China’s 2024 growth to 5.0% from 4.6%. Premier Li Qiang also announced an ambitious economic growth target of around 5% for 2024 at the annual meeting of China’s parliament in March. However, analysts warn that achieving this target may require additional stimulus measures, as the weak base effect of 2022 that boosted growth in 2023 will not be present in the coming year.
The PMI survey revealed that expansion in manufacturers’ output and new orders accelerated in March, with external demand also increasing. New export orders reached their highest level since February 2023. Business confidence for the year ahead rose to its highest point in nearly a year, fueled by factors such as lower input costs. Despite these positive indicators, companies remain cautious about adding employees, as the relevant sub-index has been negative since August 2023.
Senior economist Wang Zhe emphasized that lower raw material prices have led to reduced production costs for manufacturers, enabling them to lower prices and compete more effectively in the market. However, Wang also highlighted ongoing challenges such as subdued employment growth, low prices, and insufficient effective demand. To address these issues and support economic growth, policymakers will need to focus on boosting domestic and external demand further.
