China's Manufacturing Activity: Conflicting Signals in February
China's manufacturing activity in February presented a mixed picture, with official data signaling contraction for the second month, while a private sector index reported expansion at its quickest pace in over three years.
The National Bureau of Statistics (NBS) reported a decline, attributing it largely to the Lunar New Year holiday. In contrast, S&P Global's RatingDog China General Manufacturing PMI indicated growth driven by increased demand.
Official PMI: Contraction Amid Holiday Season
According to the National Bureau of Statistics (NBS), China's official manufacturing Purchasing Managers' Index (PMI) registered 49 in February, signaling contraction in manufacturing activity. A reading below 50 indicates contraction. This marked the second consecutive month of decline, following a similar trend in January, and was slightly below economists' forecast of 49.1.
The NBS also reported that the composite PMI, tracking both manufacturing and services, decreased to 49.5 from 49.8 in January. Similarly, the non-manufacturing PMI, covering services and construction, also edged down to 49.5.
NBS statistician Huo Lihui attributed the decline primarily to reduced factory operations and production during the extended Lunar New Year holiday, which took place from February 15 to February 23.
Private PMI: Expansion Driven by Demand
In contrast, the RatingDog China General Manufacturing PMI, compiled by S&P Global, indicated an expansion in manufacturing activity during February. This private index rose sharply to 52.1 in February from 50.3 in January, surpassing analyst forecasts of 50.2. This marked the fastest rate of expansion since December 2020.
The private survey attributed this growth to several key factors:
- New Orders: New orders for manufactured goods increased for the ninth consecutive month, reaching their quickest pace since December 2020.
- Export Demand: Overseas demand also saw significant growth, with new export orders increasing at their most pronounced rate since September 2020.
- Output Growth: Output growth also increased, contributing to the overall expansion.
- Manufacturer Confidence: Chinese manufacturers expressed higher optimism about future output, with overall sentiment reaching an 11-month high in February.
An outdoor furniture seller in eastern China provided an anecdotal example, reporting a 30-40% increase in orders in January compared to the previous year, with continued growth in February, attributing it to improvements in supply chains and overseas warehouses.
Divergent Findings and Economic Outlook
The discrepancy between the official and private surveys is often attributed to differences in their coverage and the profiles of their respective respondent groups.
Despite an increase in backlogs during the Chinese New Year period, the S&P survey noted that hiring remained cautious, with employment rising fractionally for the second consecutive month. This marked the first such sustained increase since mid-2021.
Yao Yu, founder of RatingDog, commented that while the manufacturing PMI is anticipated to maintain a moderate expansionary trend in the short term, its sustainability will depend on persistent demand and whether increased confidence translates into greater hiring and investment.