China’s manufacturing activity contracted in March for the first time in five months due to various uncertainties and negative impact from home and abroad. However, analysts and officials remain upbeat about the medium- and long-term prospects of the Chinese economy, as the country still has room for macro policy fine-tuning and adjustments. They expected a stronger fiscal policy and more easing monetary measures in the coming months to further shore up growth, including tax reductions, more infrastructure investment, and interest rate and reserve requirement ratio (RRR) cuts. The purchasing managers index for China’s manufacturing sector stood at 49.5 in March, compared with 50.2 in February, data from the National Bureau of Statistics (NBS) showed, slipping into contraction after staying in expansionary territory for four consecutive months. The 50-point mark separates growth from contraction. The non-manufacturing PMI, which covers the services and construction sectors, was at 48.4 versus 51.6 in February, slipping into contraction for the first time in seven months, according to the NBS.
Zhao Qinghe, Senior Statistician at the NBS, said the resurgence in Covid-19 cases has dealt a blow to service sectors, such as transportation, accommodations and catering. For manufacturers, the resurgence has affected the production and operation of some enterprises, and the escalating geopolitical tensions led to a decline in or cancellation of export orders, Zhao said. Midstream and downstream enterprises are also facing pressure from the rising costs of raw materials, with surging commodity prices clouding the outlook.
Despite the downward pressures, Luo Zhiheng, Chief Economist at Yuekai Securities, highlighted that the high-tech manufacturing PMI had stayed in expansionary territory, saying this indicates the steady progress of economic structural transformation and high-quality development. Luo said the current economic situation requires a proactive fiscal policy, such as promoting the issuance of local government special bonds to accelerate infrastructure construction and stabilize investment, and more efforts should also be made to ensure the basic livelihood of people affected by Covid outbreaks. Wu Chaoming, Deputy Director of the Chasing International Economic Institute, estimated that the manufacturing PMI may expand above the 50-point mark in the following months with the help of the government’s effective measures to control the pandemic and stabilize growth.
