According to the latest factory survey, China’s manufacturing activity expanded at the fastest pace in a year in March. The manufacturing Purchasing Managers’ Index (PMI) rose to 50.5 in March from 50.2 in February, marking two consecutive months of expansion. This growth provides relief for the world’s second-largest economy as it confronts an intensifying trade war with the United States.
Key Manufacturing Indicators Show Improvement
March’s uptick was broad-based, with several key subindices improving. Production increased to 52.6 from 52.5, while new orders rose to 51.8 from 51.1. New export orders improved to 49.0 from 48.6 – still in contraction but representing an 11-month high. The discrepancy between total new orders and export orders suggests domestic demand played a significant role in the rebound.
Trade War Impact and Front-Loading Behavior
The data suggests recent US tariff hikes haven’t yet significantly impacted Chinese manufacturers. However, analysts note that exporters may be front-loading orders in anticipation of additional tariffs expected in April. US President Donald Trump has already raised tariffs on Chinese imports by 20 percent since returning to office.
Services and Construction Also Showing Growth
China’s non-manufacturing PMI increased to 50.8 in March from 50.4 in February. The construction sector subindex rose to 53.4, though new orders fell to 43.5, indicating ongoing challenges despite government efforts to stabilize the property market. The overall composite PMI increased to 51.4 in March.
Government Stimulus Measures Boosting Domestic Consumption
Chinese authorities have implemented several domestic stimulus measures to offset potential export weaknesses. The government’s equipment renewal scheme and trade-in policies have emerged as main levers for boosting domestic demand in 2024. These subsidies and trade-in programs have effectively stimulated consumption across various sectors.
Future Economic Outlook
Despite positive manufacturing data, concerns remain about potential risks in the second quarter. Zhang Zhiwei, chief economist at Pinpoint Asset Management, noted that while production and orders improved, employment cooled, and manufacturers’ expectations declined. “The uncertainty from US tariffs likely weighs on exporters’ expectations,” Zhang said.
China’s action plan also focuses on developing the services sector, including childcare, elderly care, and tourism. These “life services” industries may benefit from additional policy support as China continues to shift toward domestic consumption-driven growth.