China's Manufacturing Sector: A Mixed Picture in Early 2024

China's manufacturing activity showed mixed trends in the early months of 2024, according to two distinct Purchasing Managers' Index (PMI) reports. Official data indicated a contraction in manufacturing for a second consecutive month in February, attributed to the Lunar New Year holiday, before expanding in March. In contrast, a private survey reported a significant expansion in February, marking its strongest growth in over three years.

Official data pointed to contraction in February, followed by expansion in March, while a private survey reported strong expansion in February, highlighting contrasting views of China's early 2024 manufacturing performance.

Official PMI: Contraction Followed by Expansion

The official manufacturing Purchasing Managers' Index (PMI), released by the National Bureau of Statistics (NBS), registered 49.0 in February. A reading below 50 signifies contraction in manufacturing activity. This marked the second consecutive month of contraction, following a January reading of 49.3. The February figure was slightly below economists' forecasts of 49.1.

NBS statistician Huo Lihui attributed the February decline to reduced factory operations and production during the extended Lunar New Year holiday, which occurred from February 15 to February 23.

In March, the official manufacturing PMI reversed course, rising to 50.4. This figure exceeded economists' predictions of 50.1 and marked the first expansion in a year, ending two months of contraction. This expansion was reportedly supported by strong momentum in export orders. Sub-indexes within the manufacturing PMI showed production and new orders expanding, while measures for raw materials inventory, employment, and delivery time remained in contraction. Mr. Huo Lihui stated that manufacturing activity gained momentum in March as factories resumed production post-holiday.

The composite PMI, which tracks both manufacturing and services sectors, decreased to 49.5 in February from 49.8 in January. The non-manufacturing PMI, covering services and construction, also edged down to 49.5 in February. In March, the non-manufacturing PMI increased to 50.1, up from 49.5 in February.

Private Survey Reveals Strong February Growth

In contrast to the official figures for February, the RatingDog China General Manufacturing PMI, a private survey compiled by S&P Global, indicated an expansion in factory activity. This index rose to 52.1 in February from 50.3 in January, surpassing analyst forecasts of 50.2. This reading represented the fastest expansion rate since December 2020.

The private survey reported that this expansion was driven by increased demand and manufacturer confidence. New orders reportedly rose for the ninth consecutive month at the quickest pace since December 2020. New export orders also saw growth, increasing at the most pronounced rate since September 2020. Output growth increased significantly during this period.

Discrepancies between official and private surveys are often attributed to differences in coverage and respondent profiles. According to the S&P survey, Chinese manufacturers expressed higher optimism about future output in February, reaching an 11-month high in overall sentiment. While backlogs reportedly increased during the Chinese New Year period, employment rose fractionally for the second consecutive month, marking the first sustained increase since mid-2021.

Yao Yu, founder of RatingDog, commented that the manufacturing PMI is expected to maintain a moderate expansionary trend in the short term, with sustainability dependent on persistent demand and the translation of confidence into increased hiring and investment.