China's Manufacturing PMI is Solid Despite the Chinese New Year Holiday

China's manufacturing data unexpectedly expanded despite the closure of most factories for the week-long Lunar holiday. Similar increases also occurred in China's small and medium manufacturing sector and service sector.

On Tuesday (01/March), China's National Bureau of Statistics released Manufacturing PMI data which reached 50.2 during February. Even though it only increased slightly from the previous month's gains, this time the index managed to break expectations of a decline to the contraction zone of 49.9.

Economists expect factory activity to slump due to the Lunar New Year since late January. In previous years, Chinese New Year holidays usually had an impact on economic activity because workers spent vacation time with their families. Besides that, international events such as the Winter Olympics were initially projected to suppress China's industrial activity.

However, in reality, the February Manufacturing PMI remained in the expansion zone. Although the production sub-index fell from 50.9 to 50.4 in February, new orders rose significantly from 49.7 to 50.7. The export orders sub-index also rose from 48.4 to 49.0 in February.

"Overall, China's manufacturing sector remains on a long-term recovery path marked by expansion in February... Supply is recovering, while demand is improving and supported by industry optimism about business prospects. However, China's labor market remains under high pressure and we must also be aware of inflationary pressures," said Wang Zhe, senior economist at Caixin Insight Group.

The increase also occurred in the small-medium scale industrial sector (SMEs), where there was an increase in the Caixin Manufacturing PMI from 49.1 to 50.4. Not only that, China's non-manufacturing (services) sector also continued to expand from 51.1 to 51.6.

Despite a positive start to the year, China's economy is expected to face tough challenges in the medium term, pressured by weaker demand expectations and supply disruptions. This concern was reflected in a request by a Chinese Communist Party official who on Friday last week suggested that the government provide more support to spur the economy.