China's factory growth came to a standstill in March, affected by a slowdown in production and diminished global demand, which cast doubt on a post-pandemic recovery, according to a private sector survey published on Monday.
The Caixin/S&P Global manufacturing purchasing managers' index (PMI) dropped to 50.0 in March, following February's reading of 51.6, which marked the first monthly expansion in seven months. The result was significantly lower than the 51.7 expected in a Reuters poll, and it mirrored the slower growth observed in an official PMI published on Friday. The 50-point index separates monthly growth from contraction.
China's economy, the world's second-largest, exhibited a gradual recovery in the first two months of 2023 due to a robust upswing in the services sector, spurred by the relaxation of stringent COVID-19 containment measures that had been in place for years.
However, the combination of a property downturn, a decline in global demand, and financial uncertainty has cast doubt on the sustainability of this momentum.
Wang Zhe, Senior Economist at Caixin Insight Group, stated, "The foundation for economic recovery is not yet solid. Looking forward, economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption."
He added, "Only by working hard to stabilize employment, increase household income, and improve market expectations can the government reach its goal of restoring and expanding consumption."
After growing only 3% last year, one of the weakest performances in almost half a century, Beijing set a conservative economic growth target of approximately 5% for 2023.
Factory activity in March was impacted by a reduction in production and demand growth, with both sub-indexes declining from the previous month. The new export orders sub-index fell to 49.0 after briefly indicating growth in February, implying that global demand remains weak.
To bolster growth, Chinese Premier Li Qiang pledged last week to support consumption and investment. Additionally, the central bank reduced the reserve requirement ratio last month.
In recent days, China's top officials have adopted a more conciliatory stance towards the private sector, which has buoyed markets. "The new economic team is officially taking over; we will likely see more pro-business policies going forward, even though our expectation for stimulus is low," Citi noted in a research report.
