China’s vast manufacturing industry sent mixed signals last month about the health of the economy, fueling calls for Beijing to do more to boost growth just days before a key meeting of the country’s leaders.
The National Bureau of Statistics reported Friday that the official Purchasing Managers’ Index (PMI) of activity at mainly large, state-owned manufacturers dropped to 49.1 last month, down from 49.2 in January. It was the fifth consecutive month the index has shown a reading below 50, indicating contraction in the sector.
But the Caixin manufacturing PMI — which focuses on smaller, private companies — rose to 50.9 in February, up from 50.8 in January, according to S&P Global, which compiled the survey. It was the fourth straight monthly expansion for the index.
Friday’s data came just a day after China’s top leadership pledged to meet economic growth targets for 2024 by spurring domestic demand and boosting tech and innovative industries.
Next week, thousands of delegates from across China will gather in the capital for the annual session of the National People’s Congress (NPC) at which the growth target for the year is expected to be revealed.
“The fact that the significant divergence between the two manufacturing PMIs has lasted for four months in a row may be a sign of structural shifts in the economy,” Goldman Sachs analysts said on Friday.
The divergence in the output and new order sub-indexes is likely related to differences in geographic and sector coverage, as the Caixin PMI covers more southern regions, they said. Southern China is home to key export hubs in Guangdong and Zheijang.
“Overall, the manufacturing sector continued to improve in February,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement that accompanied the Caixin PMI data. However, the economy still faces headwinds, he added. This was reflected by total new orders growing more slowly than output, prices remaining subdued, and employment continuing to contract.
“Looking ahead, the focus should be on the effectiveness of the measures [announced previously by Beijing to boost growth],” Wang said. “Further efforts may be required to improve people’s livelihoods and market expectations.”
China reported sluggish economic growth of 5.2% last year. This year, growth is expected to slow further to 4.5%, according to the World Bank’s most recent forecast in December. The Communist Party’s Politburo, its top decision-making body, held a meeting on Thursday to discuss the government work report that is due to be presented at the NPC meeting next week.
The 24 members of the decision-making body, led by Chinese President Xi Jinping, vowed to “meet the annual economic and social development goals and tasks,” according to a readout of the meeting published by state-owned Xinhua.
The officials reiterated that they would step up an existing proactive fiscal policy, implement a prudent monetary policy, expand domestic demand and boost sectors related to technology and innovation. Analysts expect Beijing will unveil more details about the measures during next week’s NPC session.
“Fiscal policy will lead the way,” HSBC analysts said Friday.
“We expect the broad-based fiscal deficit to be set at [approximately] 8% of GDP and the official fiscal deficit at [approximately] 4% of GDP,” which means there could be more local government bond issuance to boost infrastructure spending, they added.
— CutC by cnn.com
