In March, China’s manufacturing activity saw its first expansion in six months, as indicated by an official factory survey released on Sunday.
This development brings some relief to policymakers amidst a lingering property sector crisis, which continues to weigh on the economy and create confidence.
The official purchasing managers’ index (PMI) climbed to 50.8 in March from 49.1 in February, surpassing the 50-mark that separates growth from contraction. This exceeded the median forecast of 49.9 in a Reuters poll.
While the pace of growth was moderate, it marked the highest PMI reading since March of the previous year, reflecting an improvement in domestic supply and demand, along with a resurgence in homeowner and business confidence, as noted by Zhou Maohua, an analyst with China Everbright Bank.
However, employment continued to decline, albeit at a slower rate, according to the PMI data.
Recent positive indicators suggest that China’s economy, the world’s second-largest, is gradually regaining momentum, prompting analysts to revise their growth forecasts for the year upwards.
Despite ongoing challenges, such as a housing crisis and mounting local government debts, recent data indicates a strong end to the first quarter of the year. Manufacturing activity has picked up, alongside improvements in hiring and retail, according to China Beige Book, an advisory firm.
However, the property sector remains a significant drag on growth, posing challenges for local governments and state-owned banks.
In addition to manufacturing, the official non-manufacturing PMI, which includes services and construction, rose to 53 from 51.4 in February, marking the highest reading since September.
However, analysts believe that additional stimulus measures may be necessary to achieve this goal.
Citi recently raised its economic growth forecast for China to 5.0% from 4.6%, citing positive data and policy initiatives.
Despite short-term optimism, many analysts express concerns about China’s long-term economic trajectory.
Without significant reforms to prioritize household consumption and market allocation of resources, the country may face stagnation similar to Japan’s in the coming years.
