China factory activity contracts in February as Lunar New Year disrupts output

by XIN Yuan

China's factory activity contracted in February as the Lunar New Year holiday disrupted production and demand, though economists expect a rebound as businesses resume work in March.

Data released on Wednesday by the National Bureau of Statistics showed the official manufacturing purchasing managers' index (PMI) fell to 49.0 in February from 49.3 in January, remaining below the 50-point mark that separates expansion from contraction.

Sub-indexes pointed to weaker demand and output, with the production index falling to 49.6 and the new orders index declining to 48.6.

WANG Qing, chief macro analyst at Golden Credit Rating, told Jiemian News the decline largely reflected seasonal disruptions from the Lunar New Year holiday, which fell in February this year and temporarily reduced factory operations.

He added that China's property market remains in adjustment at the start of the year, continuing to weigh on manufacturing supply and demand.

Economists expect activity to improve as factories resume operations after the holiday period.

XU Tianchen, senior economist at the Economist Intelligence Unit, told Jiemian News that manufacturing conditions are likely to strengthen in March as pro-growth policies continue to take effect and production accelerates.

Wang said the March PMI could rebound to around 49.8–50.2. If the official PMI remains below 50 for more than three consecutive months, the likelihood of further policy easing by the People’s Bank of China would increase, he added.

Separate data released on Wednesday showed China's non-manufacturing PMI edged down to 49.5, with services activity improving slightly while construction weakened.