China’s manufacturing sector has unfortunately seen a shrinkage for the ongoing fifth month as of February, marking an underwhelming beginning to the Year of the Dragon. The official manufacturing PMI (purchasing managers’ index) exhibited a dip to 49.1 in February against January’s 49.2, pointing out a contraction for nearly every month, apart from one, in the past year.
This information was divulged just prior to the yearly week-long legislative assembly, the Two Sessions’ commencement for this week. Here, this year’s growth target is to be declared. A majority of analysts predict it to be at a consistent 5 per cent, akin to that of 2023. However, achieving this target sans the advantageous low post-Covid base that propelled the previous year could prove to be challenging.
However, the PMI data may not be quite as grim as it appears at first glance. This is largely due to most of China’s factories being closed for a week in February as employees visited home for the Lunar New Year. Encouragingly, the official non-manufacturing PMI, representative of the services and construction fields, illustrated an escalation to 51.4 in February as compared to January’s 50.7, hitting a five-month high.
In spite of buyers’ tendency to lean towards pessimism, one cannot controvert the grave adversities that the Chinese economy is confronted with. These encompass a lingering property market depression, traditionally the growth driver, and the concomitant widespread falling consumer assurance, debt, and deflation.
Potential stimulus measures may be announced during the week, however, there seems to be an absence of any signals that the Communist Party is preparing to react to the scale of their responses witnessed during the 2008 and 2015 crises. These responses have been instrumental in stabilising the economy albeit generating large-scale debt. However, the focus of Beijing is moving towards augmenting its industrial base involving “new productive forces” , that include advanced semiconductors, AI, and big data.
Meanwhile, China is globally paving the way with respect to clean technologies like solar panels and electric vehicles. However, due to Chinese consumers expressing reluctance in spending, such products are largely directed towards the export market. This is setting the stage for a potential showdown with the European Union and the United States.
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