Two surveys of China’s massive manufacturing sector offer signs of stability but analysts have cautioned that its recovery faces growing pressure.
A rise in overseas and domestic demand plus a sustained improvement in production of high-tech equipment helped to push China’s official manufacturing purchasing managers’ index (PMI) to 51.6 in February, up from 51.3 in January, according to the national bureau of statistics.
The index has beaten expectations to stay above the 50-point mark — which separates expansion from contraction — for seven straight months, thanks to a strong housing market and continued bank lending.
A separate survey, the private Caixin manufacturing PMI, found a sharper pick-up, from 51.0 in January to 51.7 last month, the joint second highest level in four years. Caixin takes data from small and medium-sized firms while the official PMI focuses more on larger, state-run enterprises.
Zhengsheng Zhong, a Caixin economist, said: “The Chinese manufacturing economy continued to recover in February. But it is premature to jump to the conclusion that the recovery is entrenched. The second quarter is likely a key period to look at for future trends.”
The two PMIs indicate “reasonably strong” growth but “this largely comes on the back of stronger external demand which we don’t think will be sustained”, Julian Evans-Pritchard, an analyst at Capital Economics, wrote in a note. “We think that domestic demand growth in China, which appears to have plateaued recently, will slow in the coming quarters as a tighter monetary and fiscal stance continues to weigh on credit growth and infrastructure investment,” he said.
This Sunday the Chinese premier, Li Keqiang, will open the brief annual session of the rubberstamp parliament with a state-of-the-nation address expected to underscore the Communist Party’s economic priority of “seeking progress while maintaining stability”.
The government appears less fixated on high growth numbers – last year GDP grew at 6.7 per cent, the slowest rate for a quarter of a century – but has struggled to shift away from debt-fuelled investment.
President Xi, leader of the Communist Party, has called for economic reforms to be speeded up but no bold moves will be risked this year as he prepares for a key party congress, likely to be in November.
Xinhua, the state news agency, congratulated China on delivering economic success. “In a world beset by unpredictabilities, China has stood firm in its pledge for stability and progress, and with each year it has continued to solidify its role as a key engine driving global growth,” it said.