China Manufacturing Grows for First Time in Half-Year
China's manufacturing sector showed signs of recovery as the official purchasing managers' index (PMI) rose to 50.8 in March from 49.1 in February, marking the first expansion in factory activity in six months. This positive shift surpassed the median forecast of 49.9 in a Reuters poll, signaling potential stabilization in the economy. The increase in the PMI, which also encompasses services and construction, was the highest reading since September, indicating an improvement in these sectors as well.
Despite the uptick in manufacturing, challenges remain, particularly in the property sector, where a deep slump persists. This downturn continues to test the financial stability of heavily indebted local governments and state-owned banks. Analysts warn that without significant policy changes to encourage household consumption and a more market-oriented allocation of resources, China's economy might face stagnation similar to that experienced by Japan in previous decades.
In response to the recent data and the need for further economic support, Citi has revised its growth forecast for China, raising it from 4.6% to 5.0% for the year. Moreover, China's cabinet has initiated a plan to stimulate large-scale equipment upgrades and consumer goods sales, potentially generating significant market demand. Nevertheless, meeting the ambitious 5% growth target set by Premier Li Qiang for 2024 may require additional stimulus measures.
