Chinese manufacturing PMIs show small improvements in February

Two separate readings of manufacturing activity in China showed little change in February, but still managed to come in ahead of economists' expectations.

The 'official' manufacturing purchasing managers' index (PMI) from the National Bureau of Statistics of China came in at 49.1 last month, down just 10 basis points from 49.2 in January. While this still showed a contraction in activity – indicated by any reading below 50 – it was slightly above the consensus forecast of 49.0.

Meanwhile, the 'non-official' Caixin manufacturing PMI rose to 50.9 from 50.8, marginally higher than the consensus forecast of 50.7.

Economist Duncan Wrigley from Pantheon Macroeconomics pointed out that the Caixin survey is "more weighted towards light industry and private firms in southern coastal provinces compared with the official index", which often explains why the two gauges can show contrasting activity.

Wrigley said that Chinese Premier Li Qiang is expected to announce tax, credit and trade-in incentives for auto and home appliance purchases at next week’s National People’s Congress. Special bond funding for infrastructure investment should speed up project completion, though new residential demand still remains subdued and more support is required.

"China’s recovery is likely to make only gradual gains this year, as policymakers balance short-term growth with refashioning the economic model away from property sector reliance towards high-tech manufacturing," Wrigley said.

The National Bureau of Statistics also released the non-manufacturing PMI for February on Friday, revealing that service-sector growth picked up more than forecast last month due to strong holiday spending. The services PMI rose to 51.4 from 50.7 in January, ahead of the 50.7 expected.

"Chinese people have been keen to get out and enjoy life again since the reopening a year ago, in a similar pattern to many other economies. Total domestic tourism spending during the Lunar New New period was 7.7% higher than the same period in 2019," Wrigley said.