China’s factory activity grows further, marks its highest reading in nearly 11 years

China’s factory activity for February bounced further into expansion territory, according to data from the National Bureau of Statistics. The official manufacturing purchasing managers’ index rose to 52.6 in February – above the 50-point mark that separates growth from contraction. That marks the highest reading since April 2012, when it hit 53.5. February’s PMI reading is also higher than the 50.1 reported for January and above expectations of 50.5, according to economists surveyed by Reuters. Non-manufacturing PMI also grew further to 56.3 from January’s print of 54.4, when it saw a sharp improvement backed by a recovery in services and construction activity.

China’s manufacturing PMI

The government said February’s reading showed continued improvement in the climate for production and business, noting that the total volume of activity “significantly increased” as well. “The broad-based obvious improvements for both Manufacturing and non-Manufacturing PMIs in February reflect the solid momentum of post-reopening recovery,” economists at Citi said in a note. Citi economists added that while expectations for stimulus policies are low, the People’s Bank of China would be be “mindful of inflation risks and may tilt to a natural policy once the economy is back on track.” The Chinese offshore yuan strengthened 0.56% to 6.9148 against the greenback. China Beige Book’s chief economist Derek Scissors told CNBC’s “Squawk Box Asia” he expects to see an improvement in consumption later this year – buoyed by any announcements from the upcoming National People’s Congress meetings. “I think April’s really the time that consumers will take cues from the March National People’s Congress meetings and the announcements made there,” said Scissors. He added, “In April, we should see where the course of Chinese consumption is going. It will be better than last year, but it won’t be much better and the people relying on that may be disappointed.” China’s National People’s Congress kicks off on Sunday.

Moody’s raises forecast

Shortly after China’s factory activity data was released, Moody’s announced that it expects China’s economy to grow by 5% for 2023, an upgrade from its previous outlook of 4% growth. “We expect pent-up demand for non-traded services to support a consumption rebound starting this spring,” it said, adding that its growth forecast for 2024 has also been upgraded from 4% to 5%. “The Chinese government’s decision to fully relax COVID-19 restrictions will naturally boost the country’s economic activity from 3.0% growth in 2022,” Moody’s said, while noting growth will likely decline over the medium term.