China’s Manufacturing PMI Slows, Adding Pressure on President Xi Jinping Ahead of Annual Political Event
China’s economy continues to show signs of sluggish momentum as factory activity slows down, increasing pressure on President Xi Jinping to take action and boost growth. The country’s official manufacturing purchasing managers’ index (PMI) for February stood at 49.1, slipping from 49.2 in January and in line with analyst forecasts. A reading below 50 indicates a contraction from the previous month.
This consistent weakness in China’s manufacturing PMI, which has been below 50 for five consecutive months, adds to the challenges faced by Beijing as it prepares to open the annual meeting of its rubber-stamp parliament, the National People’s Congress. During this event, the government will announce its targets for economic growth and fiscal stimulus for the year ahead. It is also an opportunity for the Communist Party to make important announcements regarding its military budget, potential personnel changes, and policy priorities.
The disappointing PMI reading puts pressure on policymakers to implement stronger stimulus measures. The politburo, the Chinese Communist Party’s leadership body, has already indicated that more stimulus may be necessary. However, it is unlikely that Beijing will announce a large-scale stimulus package like those seen in the past.
Larry Hu, chief China economist at Macquarie Group, commented on the cautious approach of both corporates and consumers based on the production and consumption data from February. He also noted that the lunar new year holiday reduced the number of working days in the month, making it a less reliable indicator of the economy’s health.
Analysts expect Beijing to announce a growth target of around 5% for 2024, which is the same as last year’s figure. Achieving this target will be more challenging this year due to the absence of a low base effect caused by the coronavirus pandemic, which boosted growth in 2023.
Policymakers are also grappling with a slowdown in the property sector. To counter this, they are focusing on promoting high-end manufacturing and infrastructure investment. The politburo emphasized the need to accelerate the development of new productive forces and the construction of a modern industrial system.
On a positive note, the non-manufacturing index, which covers services and construction, painted a stronger picture for consumption. The gauge rose to 51.4 in February from 50.7 the previous month. The National Bureau of Statistics reported that while activity in the construction industry softened slightly and real estate activity contracted, other sectors such as catering, transport, and entertainment experienced a boom during the lunar new year holiday.
However, analysts caution that consumer and investor confidence remains relatively low despite the positive non-manufacturing index. The overall economic indicators for January and February will provide a fuller picture of China’s economy, taking into account the base effect from the exit wave of COVID-19 in late 2022.
In conclusion, China’s manufacturing PMI slowdown adds pressure on President Xi Jinping ahead of the annual political event. Policymakers are expected to announce measures to boost growth and stimulate the economy. The challenges posed by the property sector slowdown and the absence of a low base effect from the pandemic make achieving the growth target more difficult this year. However, the non-manufacturing index indicates stronger consumption in certain sectors. Overall, consumer and investor confidence remains relatively low, highlighting the need for further measures to support economic recovery.
