Jamie Spencer
China’s factory activity expanded at its fastest pace in three months in February, with the private-sector Caixin/S&P Global manufacturing PMI rising to 50.8, surpassing forecasts of 50.3. This marks an acceleration from January’s 50.1 and December’s 50.5, keeping the index above the 50 threshold that separates expansion from contraction since last October.
Stronger Demand and Tariff Uncertainty
The positive private survey follows China’s official manufacturing PMI released Saturday, which also showed factory activity expanding at the fastest pace since November, rising to 50.2 from 49.1 in January. Meanwhile, the non-manufacturing PMI climbed to 50.4 from 50.2.
The February data came amid concerns that fresh U.S. tariffs could pressure China’s manufacturing sector, which accounted for a quarter of the nation’s GDP last year. However, export demand strengthened, with new export orders growing at the fastest rate since last April. Analysts suggest this could be due to U.S. importers accelerating purchases ahead of anticipated additional U.S. tariffs.
Impact of U.S. Tariffs
Last week, President Donald Trump announced an additional 10% tariff on Chinese goods, following a previous 10% levy imposed on February 4. Trump has also floated the idea of raising tariffs to 60% during his campaign. The new tariffs are set to take effect on March 4, coinciding with China’s high-profile annual political gathering where leaders are expected to outline economic targets for 2025 and announce fresh stimulus measures.
Investors are closely watching for countermeasures from Beijing and further details on China’s stimulus plans, including increased fiscal spending to bolster domestic demand and combat persistent disinflationary pressures.
Patchy Economic Recovery
At the upcoming National People’s Congress, Chinese leadership is expected to acknowledge weakened domestic demand and unveil measures to support growth amid rising trade tensions with the U.S.
While fiscal stimulus and front-loading of exports may have helped China’s economy regain some momentum in February, analysts warn that overall growth could slow in the coming months. Capital Economics’ Zichun Huang cautioned that unless China implements stronger-than-expected stimulus, a broader economic slowdown this year appears unavoidable.
Challenges in the Manufacturing Sector
- Factory output prices remain under pressure, particularly in consumer and investment goods.
- Rising raw material costs for copper and chemicals are squeezing manufacturers’ profit margins.
- Employment in the manufacturing sector slumped to a near five-year low, as businesses focused on cost-cutting, particularly in consumer goods production.
While February’s PMI readings suggest some resilience in China’s manufacturing sector, the outlook remains uncertain as businesses navigate rising costs, trade tensions, and soft domestic demand.
