China's manufacturing industry at the highest level for a decade

China's manufacturing sector has shown an unexpected increase in activity, reaching a decade-high growth rate in February, according to the country's National Bureau of Statistics. The manufacturing purchasing managers' index (PMI) exceeded analyst forecasts, rising from 50.1 in January to 52.6 last month. The reading was above the 50-point mark that separates expansion and contraction in activity and was the highest recorded since April 2012. While the rebound was partly due to the country's weak starting point entering 2023, the increased manufacturing activity could signal a stronger economic outlook. Furniture manufacturing, metal products, and electrical machinery equipment saw the biggest improvements, with production and new orders indexes in these industries all above 60.0.

New export orders also increased for the first time since April 2021, while China's non-manufacturing purchasing managers' index (PMI) rose to 56.3 from 54.4 in January, indicating the fastest pace of expansion since March 2021. The country's construction activity also increased, standing at 60.2 from 56.4. The continued rise in services activity, improvements in the transportation and accommodation sectors, and the positive outlook for the country's economy provide a positive note for the upcoming National People's Congress. The government is expected to roll out further supportive policies to cement the economic recovery.

While the high PMI readings partly reflect the weak starting point for the economy this year, analysts suggest that the latest data suggests even above-consensus forecasts for growth may prove too conservative. However, the outlook remains mixed as China's major trading partners deal with surging interest rates and cost pressures. Manufacturing companies have also seen surging purchasing prices in steel and related downstream industries, while cautious domestic consumption and uncertain foreign demand have put pressure on the manufacturing sector. Despite this, the upbeat PMI data provides a more optimistic view of China's economic prospects, which has been welcomed by global markets. The annual meeting of parliament, which begins this weekend, is expected to set economic targets and elect new top economic officials.