In February, China’s official manufacturing PMI rose to 50.2 from 49.1 in January, indicating stable production activity post-Lunar New Year. The two-month average for new orders and production PMIs was 50.2 and 51.2, suggesting continued manufacturing resilience with IP growth maintaining at 5.0% year-on-year.
However, trade performance likely declined due to the impact of the Lunar New Year holiday and new tariffs imposed by the US. Consumer Price Index inflation is anticipated to have decreased to -0.6% year-on-year, influenced by falling prices in food, services, and fuel, as well as a significant base effect.
Credit Growth And Government Financing
Total social financing (TSF) growth is expected to have increased by 0.4 percentage points to 8.4% year-on-year, while new CNY loan growth remained stable at 7.5% year-on-year. Government bond financing was substantial, supporting ongoing project financing needs.
A bounce in China’s official manufacturing PMI offers a relatively firm signal that production is maintaining momentum following the Lunar New Year period. Movement from 49.1 to 50.2 suggests that industries have regained lost ground after the seasonal slowdown. When averaging data across January and February, the expansion in new orders and production at 50.2 and 51.2, respectively, implies a sustained capacity to meet demand. Industrial production growth holding steady at 5.0% year-on-year aligns with this, showing that the sector has not faltered despite external pressures.
That said, trade appears to have weakened. It’s likely that the holiday period, which usually hampers trade activity, played its usual role. Additional challenges came in the form of new US tariffs, which are poised to have curtailed export activity. This puts traders on watch for any indication of whether external demand will rebound in the coming months or whether geopolitical factors will keep exports under pressure.
On the domestic front, consumer prices are projected to have dropped further, with a decline to -0.6% year-on-year. Lower food, fuel, and service costs have been influential here, but a stronger base effect compared to a year ago has also magnified the downturn. For policy watchers, this will add to speculation about whether further monetary or fiscal action might be in the pipeline to boost pricing power.
Credit conditions, on the other hand, suggest that financial support has remained relatively steady. Total social financing (TSF), an indicator of broader credit and liquidity in the economy, is expected to have moved up slightly, rising 0.4 percentage points to 8.4% year-on-year. Meanwhile, new CNY loans kept their pace at 7.5% year-on-year, suggesting no surge in corporate borrowing, but also no contraction. This is paired with high issuance of government bonds, which kept funding available for infrastructure and public projects. The steady credit environment suggests that authorities are ensuring that liquidity remains ample without unleashing excessive new credit risks.
Implications For Traders And Policy Watchers
For traders, the stability in production and lending provides a relatively clear backdrop against which to assess risk exposure. However, lingering questions remain around international trade pressures and the ongoing dip in consumer prices. The direction of policy responses, whether through credit easing or targeted stimulus, will be key factors to watch.
