China's factory activity slows for 5th month as weak demand hampers growth

China’s factory activity shrank for the fifth straight month in February, suggesting weak demand remains an obstacle for the economy.
 

The official manufacturing purchasing managers index for last month edged lower to 49.1, the National Bureau of Statistics said in a statement Friday. That compares to the median forecast of 49.0 by economists surveyed by Bloomberg News, and January’s reading of 49.2.

A gauge of non-manufacturing activity rose to 51.4, versus an estimate of 50.7, helped by a pickup in travel and tourism during a recent long holiday. Any reading above the 50 mark suggests an expansion from the previous month, while a figure below that denotes contraction.

China’s 10-year government bond yield rose 2 basis points to 2.37 per cent after touching the lowest since 2002 earlier this week. Investor concern about the supply of debt had prompted some profit-taking following a recent rally.

China’s CSI 300 Index rose 0.2 per cent, taking its gain for the week to 0.9 per cent. The yuan weakened 0.12 per cent at 7.1966 versus the dollar as of 1:10 p.m. in Shanghai.

What Bloomberg Economics Says ...
 

China’s February business surveys contained some bright spots concentrated in the service sector. The question is whether the improvement is sustainable. Our view — probably not ... The patchy data reinforce the need for further policy support, which the National People’s Congress – due to open next Tuesday – is likely to signal. 

— Chang Shu, Chief Asia Economist

The data added to signs of an uneven recovery in the world’s No. 2 economy. This will likely add pressure on fiscal and monetary policymakers to act after top leaders vowed to maintain a pro-growth stance in 2024.

China is still grappling with several key issues, including an unfolding property crisis and stubborn deflation. A recent stock market rout underscored an erosion of investor confidence, despite Beijing’s attempts to turn things around, notably by unleashing more long-term cash for banks and broadening developer access to loans. 

Earlier data showed that the nation’s home sales slump dragged on in February, though the figures were also impacted by the holiday break. 

Zhiwei Zhang, president and chief economist of Pinpoint Asset Management Ltd., said in an email after the results that the holiday period makes it hard to “get a clear picture of economic momentum.”

“This is particularly true for the manufacturing sector,” Zhang said. “Other data points show a mixed picture, with travel data strong but housing data weak.”