China returns to growth, signs of confidence from industry and exports

BEIJING – A new breath of fresh air. A positive start to 2024 continues for the Chinese: a bit of relief for Beijing (and for investors globally) which gives the world’s second largest economy a good basis to get back on track, despite the continuing collapse of the real estate sector and the slowdown in consumption.

China’s manufacturing activity expanded at the fastest pace in 13 months: The Caixin/S&P Global PMI rose to 51.1 in March from 50.9 the previous month, marking expansion for the fifth consecutive month (the 50-point threshold separates growth from contraction), thanks to an acceleration of the growth of domestic demand and foreign. Encouraging results that come after the recent positive data on exports (in January-February they increased by 7.1% compared to the previous year) and on retail sales (+5.5% in the first two months of the year).

The stock exchange thanks you: Chinese stocks posted their biggest daily gain in a month on Monday. At the close, the Shanghai Composite Index was up 1.19%, while the blue-chip CSI300 Index rose 1.64%.

«Economic performance in the first two months of this year was better than expected, while the manufacturing PMI remained in expansionary territory for five consecutive months. This indicates a generally stable and positive economic recovery,” he said Wang Zhe, economist at Caixin Insight Group. “The series of policies introduced at the beginning of the year to stabilize growth is gradually producing effects,” continues Wang. Even if to reach this year’s ambitious economic growth target of “around 5%” – as announced il premier Li Qiang at the beginning of March during the opening of the works of theNational People’s Congress – «constant efforts will be necessary. The Chinese economy still faces headwinds.”

Despite the recovery in most PMI sub-indexes, it remains to be seen how sustainable the rebound will be, given persistent weakness in some areas. «The contraction of the sub-index of producer prices in the official manufacturing PMI was accentuated, for example, in March, highlighting the deflationary pressures that are squeezing companies’ profit margins. The Caixin survey also showed that both indicators of input costs and producer prices hit their lowest levels since July 2023,” Bloomberg points out.

Positive, more contained signals, also from real estate market in crisis. Prices of new homes in China rose in March at the fastest pace in more than two and a half years in March compared to the previous month, thanks to government support measures implemented in recent months: the average prices of new homes in 100 cities increased 0.27% compared to March, the largest increase since July 2021, according to data from China Index Academy. However, the value of new home sales by the 100 largest real estate companies fell by about 46% compared to the previous year, to 358 billion yuan (45.8 billion euros), after a 60% decline in February, demonstrating that a turnaround in the trend for the brick sector is not yet in sight.