China’s factory activity shrank for the fifth month, as the country’s economic indicators continue to show signs of trouble.
The nation’s official manufacturing purchasing managers’ index (PMI) for February stood at 49.1, a slight decrease from January’s 49.2, aligning with Reuters’ analysts’ expectations, the Financial Times reported on Friday. A PMI reading below 50 indicates a contraction, marking the fifth-consecutive month of decline, a trend only broken by one positive reading in September since last March, the newspaper reported.
“The combination of weakening growth, slumping confidence, entrenched deflation, a real estate meltdown, and swooning financial markets ought to be a clarion call for policymakers to act decisively and soon,” Eswar Prasad, professor of economics at Cornell University, told the Financial Times.
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As China’s economy shows signs of sluggish momentum with slowing factory activity, the pressure is mounting on President Xi Jinping to take decisive action to stimulate growth. The latest figures precede the opening of the National People’s Congress (NPS), set to commence on Tuesday.
“At the NPC meeting, the government will need to come up with something more compelling than an optimistic growth target that by itself will probably do little to revive household and business confidence,” Prasad told the Financial Times.
The Congress arrives amid challenges, including a multi-year slowdown in the property sector, entrenched deflation and dwindling investor sentiment, which has seen foreign direct investment hit record lows.
Officials aim to counter these economic woes by focusing on high-end manufacturing and infrastructure investments. The annual meeting in Beijing will gather thousands of delegates from across the country, where the Chinese Communist Party will outline its economic growth targets, fiscal stimulus plans, military spending, senior personnel changes and other policy priorities for the year.
Contrasting with the manufacturing sector’s weakness, the non-manufacturing index, encompassing services and construction, exhibited signs of strength. The index rose to 51.4 in February from 50.7 in January, suggesting a more robust consumption sector, the National Bureau of Statistics (NBS) said, according to Xinhua.
“The sub-indices of retail sales, rail transport, road transport, catering, ecological protection and the management of public facilities all stood above 53, while those of air transport, monetary and financial services, and culture, sports and entertainment all stood above 60,” NBS statistician Zhao Qinghe said, according to Xinhua.
Despite a slight decline in construction and real estate activities, sectors such as catering, transport and entertainment thrived, particularly as millions traveled during the Lunar New Year holiday, which began on February 10 this year.
The seasonal impact of the Lunar New Year, which led to factory closures as workers returned home, contributed to the manufacturing sector’s sluggishness.
A survey by Caixin/S&P Global revealed expansion in manufacturing activity, with production and new orders growing faster, Reuters reported on Friday. These mixed signals from the PMIs underscore an uneven economic recovery in China, maintaining pressure on authorities for more aggressive stimulus measures and reforms to secure the nation’s long-term growth potential, the news outlet said.
Despite some positive signs on the consumption side, economic indicators overall suggest that Chinese consumers remain cautious.
“Overall, both production and consumption data from February suggest that both corporates and consumers stay cautious,” Larry Hu, chief China economist at Macquarie Group, told the Financial Times.
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