China’s official manufacturing and non-manufacturing PMIs increased in February as activities resumed following the Lunar New Year holiday. The manufacturing PMI returned to growth, while the non-manufacturing PMI gained momentum.
Despite these expansions, underlying indices indicate a less optimistic outlook. The rebound in manufacturing was driven by large enterprises, whereas medium and small firms experienced sharper declines compared to January. The increase in non-manufacturing PMI stemmed mainly from a rise in construction, while the services index showed a slowdown.
Impact Of Trade Tensions
Concerns remain due to escalating trade tensions with the US, which may impact China’s export performance. Market participants are anticipating announcements from the upcoming annual ‘two sessions’ for potential stimulus measures to alleviate risks facing the Chinese economy.
China’s manufacturing and non-manufacturing sectors showed improvement in February, but that’s only part of the story. The official figures suggest a rebound, yet the underlying details paint a more nuanced picture.
Factory activity picked up, but this was largely due to stronger momentum among bigger firms, leaving medium and small businesses in a tougher spot. The gap between company sizes hints at deeper imbalances, and that’s something to keep an eye on moving forward. Though the return to expansion is a positive signal, weaker performance among smaller manufacturers suggests demand may not be as strong as the headline numbers imply.
Outside manufacturing, growth was mostly driven by construction, but services didn’t follow suit. There was some growth, but at a slower rate than before. With domestic consumption playing a key role in China’s broader economic health, any sluggishness here could have knock-on effects. If service-related businesses don’t gain traction soon, this could temper overall confidence in the recovery.
On the external front, rising trade tensions with the US bring another layer of uncertainty. With tariffs still a point of contention and trade restrictions weighing on exports, there’s little relief coming from global demand. Businesses relying on overseas markets might face fresh headwinds, and that pressure won’t ease overnight.
Policy Expectations And Market Reactions
With the annual ‘two sessions’ approaching, attention now shifts to policymakers. Market expectations are building around possible stimulus efforts, with investors looking for clues on how Beijing plans to support growth. Any new measures will be closely analysed, especially for their impact on credit availability, infrastructure spending, and support for struggling industries. If policymakers hold off or underdeliver, sentiment could shift quickly.
For those trading derivatives, these shifts demand careful positioning over the next few weeks. Volatility may rise if policy signals deviate from expectations, and sector-specific impacts could open up trading opportunities—especially in industries exposed to construction, exports, or domestic demand. Monitoring statements from officials, particularly around liquidity measures and fiscal policy, will help anticipate market reactions. Understanding how this plays out relative to broader global trends is just as important, as the external environment remains unpredictable.
