News that China’s manufacturing activity contracted in February for the fifth successive month offered an inauspicious start to the Year of the Dragon. The official manufacturing purchasing managers’ index (PMI) fell to 49.1 in February from 49.2 in January and it has shown a contraction in every month but one over the past year.
The news came in advance of this week’s start of the Two Sessions, the annual, weeklong legislative session which will see this year’s growth target announced. Most analysts expect it to be set at 5 per cent, the same as in 2023, although that will be harder to achieve without the post-Covid low base that launched last year.
There may be less to the latest PMI data than meets the eye, not least because most of China’s factories were shut down for eight days in February as workers went home for the Lunar New Year. And the official non-manufacturing PMI, which includes services and construction, rose to 51.4 from 50.7 in January, its highest reading for five months.
Even if purchasing managers tend to err on the side of pessimism, there is no gainsaying the severe difficulties facing the Chinese economy. These include an enduring slump in the property market, once the engine of growth, and the debt, deflation and sagging consumer confidence associated with it.
Although this week could bring an announcement of further stimulus measures, there is no sign that the Communist Party is ready to act on the scale of its responses to crises in 2008 and 2015, which stabilised the economy but created huge debt. Beijing is instead focusing on modernising and strengthening its industrial base through “new productive forces” such as advanced semiconductors, big data and AI.
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Meanwhile, Chinese manufacturers are leading the world in green technologies such as electric vehicles and solar panels. But with the Chinese consumer unwilling to spend money, such goods are heading for the export market, setting Beijing up for a confrontation with the United States and the European Union.
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