Positive signal! The three major PMI indices return to the expansion zone

On March 31, the National Bureau of Statistics Service Survey Center and the China Federation of Logistics and Purchasing released the China Purchasing Managers Index. The data show that in March, the Manufacturing Purchasing Managers Index (Manufacturing PMI), the Non-Manufacturing Business Activity Index, and the Composite PMI Output Index all returned to the expansion zone. They rose by 1.4, 0.6, and 1.0 percentage points, respectively, from the previous month, indicating a rebound in China’s overall economic sentiment.

In March, the manufacturing PMI rebounded to 50.4%. All 13 sub-indices moved upward across the board. Companies’ production and market transaction activity improved significantly, and business confidence continued to strengthen. The PMIs for the three key sectors—high-tech manufacturing, equipment manufacturing, and consumer goods—expanded at a relatively fast pace. Demand for new growth drivers remained strong, reflecting that the proportion of companies whose demand was insufficient fell to below 50% for the first time.

At the same time, the non-manufacturing business activity index rose to 50.1%, returning month-on-month for the second consecutive month. Transportation, information services, and the financial industry performed especially well, and construction industry conditions also showed some recovery. However, due to the impact of geopolitical conflicts, some industries saw increases in raw-material and logistics costs, so industry divergence and cost pressures still warrant attention.

All 13 sub-indices rose to some extent

In March, the manufacturing PMI was 50.4%, up 1.4 percentage points from the previous month. After running below 50% for two consecutive months, it returned to the expansion zone, indicating that manufacturing business conditions improved to some extent.

“With businesses accelerating work and production resumption after the Spring Festival, market activity has increased.” said Huo Lihui, chief statistician of the Service Survey Center of the National Bureau of Statistics.

Judging from the 13 sub-indices, compared with the previous month, each sub-index increased to varying degrees, with the rise in the indices ranging from 0.2 to 9.1 percentage points.

Zhang Liqun, a special analyst at the China Federation of Logistics and Purchasing, said that the PMI index clearly rebounded in March. This is partly due to seasonal factors, and it also shows that confidence in China’s economy has strengthened significantly across the board. The production index and the purchasing-quantity index rebounded notably, reflecting that companies’ production activities are trending toward greater activity; the order-type indices and the price-type indices rebounded notably, reflecting that market transaction activity is trending toward greater activity.

However, Zhang Liqun also cautioned that it is important to see that competition within industries is intensifying, and the trend of differentiation among industries should also be noted.

The survey results also show that, affected by factors such as the current geopolitical conflicts in the Middle East, prices of related raw materials such as oil and chemicals rose sharply. Combined with higher freight rates, in March the share of companies reporting high raw-material costs and high logistics costs both increased from the previous month. Analysts believe this may erode companies’ profits.

The three key sectors expanded relatively quickly

From an industry perspective, in March the PMI for high-tech manufacturing was 52.1%, up 0.6 percentage points from the previous month. It remained above the critical point for 14 consecutive months, and the industry’s development trend continued to look favorable. The PMIs for equipment manufacturing and consumer goods were 51.5% and 50.8%, respectively, up 1.7 and 2.0 percentage points from the previous month, both rising into the expansion zone. The PMI for high-energy-consuming industries was 48.9%, up 1.1 percentage points from the previous month, and business conditions rebounded somewhat.

Wen Tao, an analyst at the China Federation of Logistics Information Center, said that the new orders index for equipment manufacturing and high-tech manufacturing rose by more than 3 percentage points and 2 percentage points, respectively, from the previous month. The expansion momentum after the Spring Festival accelerated noticeably. In addition, the new orders index for the two industries has been running in the expansion zone for 20 consecutive months and 14 consecutive months, respectively, showing that market demand for new growth drivers is exhibiting sustained expansion.

Wen Tao said that companies’ sense of insufficient market demand has also eased noticeably. The survey of companies shows that the share of manufacturing companies whose market demand is insufficient was 48.5%, down 6.6 percentage points from the previous month, and for the first time since July 2022 it fell to below 50%.

Non-manufacturing business conditions trending upward

In March, China’s non-manufacturing business activity index was 50.1%, up 0.6 percentage points from the previous month. It rose year-on-year for two consecutive months, ending the trend of running below 50% for two consecutive months.

He Hui, vice chairman of the China Federation of Logistics and Purchasing, pointed out that the business activity index for the transportation sector—represented by rail transport, road transport, and water transport—rose markedly from the previous month. The business activity indices for telecom operations and the internet and software technology services sector continued to rise to varying degrees from the previous month. New-growth-driver sectors represented by information services maintained a favorable development trend. The business activity index for the financial industry rose from the previous month and has remained above 60% for four consecutive months, showing that the strength of financial support for the real economy has remained strong.

In March, the business activity index for the construction industry was 49.3%, still below the 50% critical point, but up 1.1 percentage points from the previous month.

He Hui said that construction activity has also been somewhat launched. In particular, the business conditions of the civil engineering construction industry related to infrastructure development have improved noticeably, and the business activity index rose to a relatively high level above 55%.

Wu Wei, an analyst at the China Federation of Logistics Information Center, believed that the overall non-manufacturing business conditions are trending upward. However, two important areas still need further attention. First, under the influence of a high base effect from Spring Festival consumption, business conditions in consumption-related industries such as retail, accommodation, catering, and culture, sports, and entertainment have declined. The business activity index has fallen from the previous month to varying degrees, and it is worth watching how strongly the subsequent release of consumption demand will bring a rebound to these industries. Second, cost pressure from geopolitical conflicts in the Middle East on the civil engineering construction industry, the wholesale industry, and various transportation industries has begun to show up. The input price indices of the above industries rose significantly from the previous month to varying degrees. It is important to monitor the subsequent trends in the input price indices of the relevant industries.

Proofread by: Wang Chaquan