Factory activity revives in mainland China as economy reopens

While there were some uncertainties as to whether looser COVID-19 restrictions will boost the economy or lead to more disruption amid rising illness rates, the early evidence from the PMI surveys is encouraging.

The Caixin China General Manufacturing PMI, compiled by S&P Global, rose to 51.6 in February, up from 49.2 in January to register the first overall improvement in factory business conditions since prior to the Omicron wave, last July.

Factory production rose for the first time since last August, expanding at a rate not seen since last June, spurred by the first improvement in new orders since last July. Moreover, the rise in demand signalled by the new orders index was the largest since May 2021. Rising domestic demand was accompanied by the first upturn in new export orders since last July, the latter boding well for an improvement in global supply chains.

Jobs growth also resumed for only the second time in just over one-and-a-half years, suggesting factories were by and large able to expand workforce numbers to meet demand and a brightening outlook. The survey's gauge of future output expectations rose further, up for a fifth successive month to reach its highest for nearly two years.

Suppliers' delivery times also improved, quickening to the greatest extent for eight years amid the loosening of restrictions.

On the inflation side, reviving demand for raw materials, as signalled by the largest rise in purchasing by factories for 20 months, exerted upward pressure on input costs, which edged up for a fifth month running. Although far below the rates of increase seen during much of the pandemic, the rise in input costs was enough to lift average selling prices higher for the first time in ten months and to drive average prices charged for exports up at the fastest rate for just over a year.

Although the rates of price increases remain only modest for all survey gauges, these price trends will need to be eyed closely in the coming months to assess the degree to which a recovering Chinese economy might push global commodity prices and inflation higher again.

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Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

Tel: +44 207 260 2329

chris.williamson@spglobal.com

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Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.