China's Factory Activity Hits 5-Year High in February

February PMI Surges to 5-Year High

The RatingDog China General Manufacturing Purchasing Managers' Index (PMI) climbed to 52.1 in February, marking the fastest expansion since December 2020 and surpassing analysts’ predictions of 50.2. This sharp rise signals strong growth, as the 50-mark delineates expansion from contraction. Robust domestic and international demand drove this improvement, with new orders recording their quickest increase in over two years. Exports also rebounded significantly, with new export orders expanding at the fastest pace since September 2020.

Manufacturers reported notable improvements in supply chain operations, and some businesses, particularly in export-driven sectors like outdoor furniture, observed order growth exceeding 30% year-on-year. Output levels rose in tandem with demand, achieving the strongest recorded growth since mid-2024. This broad-based recovery reflects improving economic conditions and growing optimism in the manufacturing sector.

Challenges and Outlook for Sustained Growth

Despite the robust PMI data, manufacturers remained cautious about hiring. Employment levels rose only marginally for the second consecutive month, suggesting a conservative approach to workforce expansion. Backlogs also increased during February, partially due to disruptions caused by the Lunar New Year holiday.

Rising input costs presented another challenge, with input price inflation reaching its highest level since mid-2022, driven by surging metal prices. Output prices also increased, as manufacturers passed on higher costs to customers, with the rate of charge inflation hitting a 15-month high.

The outlook for sustained growth hinges on persistent demand and increased investment. While confidence in future output reached an 11-month high, long-term stability will require continued momentum in domestic and export markets. Analysts highlight the importance of policy support and targeted measures to foster further economic resilience and manufacturing sector growth.