China’s manufacturing sector witness a contraction for the fifth consecutive month

China’s manufacturing sector experienced a contraction for the fifth consecutive month, as indicated by an official factory survey released on Friday.

The manufacturing Purchasing Managers’ Index (PMI), compiled by the National Bureau of Statistics (NBS), fell to 49.1 in February from 49.2 in January. This decline adds pressure on policymakers to implement further stimulus measures as factory owners contend with diminishing orders.

The index’s fall below the critical 50-mark indicates contraction, consistent with the median forecast of a Reuters poll.

The official PMI decline might be influenced by seasonal factors, notably the Lunar New Year, which fell on February 10 this year. The festivities led to factory closures as workers returned home for the holiday. Despite the contraction indicated by the official PMI, a survey conducted by Caixin/S&P Global, released shortly after, showed a steady expansion in manufacturing activity. Both production and new orders grew at a faster pace, underscoring an uneven economic recovery.

Dan Wang, Chief Economist at Hang Seng Bank China, attributed the decline in the official PMI to a sharp contraction in new foreign orders, suggesting a potentially prolonged weakened demand from overseas markets.

The sustained decrease in new export orders for 11 consecutive months and a year-long decline in factory employment signal ongoing challenges for Chinese businesses.

China’s post-COVID recovery, characterized by below-par growth over the past year, raises doubts about the sustainability of its economic model. This has led to expectations that policymakers will need to consider more substantial reforms to support long-term growth.

Economic hurdles include a property crisis, consumer spending hesitancy, foreign firms divesting, manufacturers struggling to find buyers, and local governments grappling with substantial debt burdens.

Despite the setback in manufacturing, the official non-manufacturing PMI, covering services and construction, rose to 51.4 from 50.7 in January, marking the highest reading since September last year, attributed to robust activity during the Lunar New Year holidays.

However, construction activity experienced a slight decline of 0.4 percentage points due to continued contraction in property-related activities.