Chinese factory sector activity rebounds more quickly than expected in February

Factory sector activity in the People's Republic of China ramped up more quickly than expected in February, the results of two closely followed surveys revealed.

The Purchasing Managers' Index from private sector survey compiler Caixin rose from January's level of 49.2 to 51.6 (consensus: 51.3) for last month.

In parallel, the 0fficial manufacturing PMI jumped from 50.1 to 52.6 (consensus: 50.7).

An average for the two factory surveys improved from 49.6 to 52.1 - the best reading since late 2020, Julian Evans-Pritchard, head of China Economics at Capital Economics pointed out.

The output component rose the most, from 49.4 to 53.3, but that for new orders also rose strongly, from 50.1 to 53.5.

Strengthening demand centred on the domestic economy, although new export orders rose above the 50 point mark for the first time in eight months, Evans-Pritchard added.

Another official survey for non-manufacturing activity also improved, from 54.4 to 56.3, with that for services up from 54.0 to 55.6 and that for construction gaining from 56.4 to 60.2.

According to the economist, one needed to take into account the low starting point for the economy going into 2023 and the PMIs would "likely" fall back before long as the pace of recovery slowed.

"Nonetheless, they underscore just how quickly activity has bounced back following the reopening wave of infections.

"We had already been expecting a rapid near-term rebound, but the latest data suggest that even our above-consensus forecasts for growth of 5.5% this year may prove too conservative."

For his part, Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said that this was "an encouraging set of data, but still is only one month".

Wrigley noted how 52% of respondents to the official PMI had reported insufficient demand and 49% higher raw material costs.

As well, the ability of the economy to recover with little policy support thus far meant that the new Chinese premier would likely announce a moderate economic support package at the National People's Congress that was due to start on 5 March, he said.

He added that: "the strong PMI data means that PBoC probably will hold off this month from broad rate cuts to boost private sector confidence, while it monitors data to assess the strength of the demand rebound."