In China, manufacturing activity grew at the fastest pace in the last 13 months in March.

There was also an increase in business confidence in the Asian country last month. Currently, this indicator is at a level that corresponds to an 11-month high. The increase in optimism and the formation of a positive attitude is largely due to the growth of orders from customers in the domestic market and consumers from other countries. The relevant data is contained in the results of a private survey conducted by Caixin Insight Group.

The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) reached 51.1 last month. In February, this figure was 50.9. It is worth noting that analysts predicted that the mentioned indicator would increase to 51.0 in March. The 50-point mark is a kind of dividing line that separates growth from contraction.

Also, at the beginning of 2024, China recorded an improvement in export and retail sales figures. Against this background, optimism is scaling up in the business environment. It is also an important fact that economic indicators in the Asian country are currently showing growth that exceeds expectations. It can already be stated that 2024 has started positively for the world’s second-largest economy.

The official PMI in March was 50.8. In February, the mentioned indicator was recorded at 49.1. This figure has increased for the first time in six months. Official production data are also in positive territory. For policymakers, this means some relief. At the same time, the world’s second-largest economy continues to face what can be described as limited development opportunities. This state of affairs is the result of circumstances such as the ongoing crisis in the real estate sector, which turned out to be more sustainable than expected, and a drop in consumer confidence.

Last week, Citi improved its forecast for China’s economic growth. The experts of this financial institution explained the change in their opinion about the prospects of the Asian country’s economic system with the latest positive data on the performance of the local manufacturing sector and the service area. Analysts also noted that their decision was influenced by Beijing’s policy of stimulating the mentioned system. Citi expects the Chinese economy to grow by 5% over the current year. The previous version of the financial institution’s forecast provided that the specified figure would be 4.6%.

In March, Chinese Premier Li Qiang announced an economic growth target of about 5%. This goal is ambitious, but it does not belong to the category of scenarios whose probability of materialization is extremely minimal. Li Qiang made a statement on the economic growth target during the annual meeting of the Asian country’s parliament.

Among analysts and experts, something like a consolidated opinion has formed that to achieve the desired results in the sphere of the economy, Beijing needs to strengthen stimulus measures. The leadership of the Asian country will not be able to rely on the weak statistical base of 2022, which flattered last year’s growth data.

In March, business confidence in China for the coming year reached its highest level since April 2023. In addition to a growth in the volume of orders in the domestic market and an increase in the level of external consumer interest, the reduction of production costs has strengthened the optimistic vision of the prospects for the near future.

Wang Zhe, senior economist at Caixin Insight Group, noted that falling raw materials prices have become a factor in declining production costs. Against the background of this tendency, manufacturers have the opportunity to reduce the price of goods in conditions of fierce market competition.

At the same time, Chinese companies are taking an extremely cautious approach to increasing the number of employees. The corresponding sub-index has been negative since August 2023.

Wang Zhe says that China’s economy continues to face difficulties. In this context, the expert noted the uncertainty about the future, which continues to be widespread, despite the improvement in economic indicators. Wang Zhe also mentioned several negative impact factors. The expert said that downward pressure on the world’s second-largest economy remains. China faces subdued employment and excessively low prices. These circumstances are on an aggravation trajectory. Moreover, the problem of insufficient effective demand has still not been solved at a fundamental level in the Asian country. This means the need to further stimulate domestic and external demand.

Wang Zhe also said that Chinese manufacturers have increased their purchases and inventories of raw materials. These actions were carried out against the background of growing optimism in the business environment. Raw materials cost figures and product prices have reached new lows since July last year.

Beijing has already promised to provide state funds to encourage businesses and consumers to replace old goods, including cars, household appliances, and equipment. The Chinese leadership expects that the successful implementation of this plan will be a positive factor for industrial companies. Beijing has not yet announced the amount of financing for appropriate economic stimulus measures.

Xiao Jinchuan, an analyst with Guangfa Securities Co., says that in terms of long-term planning, solutions such as equipment upgrades will continue to support demand in the manufacturing sector.

Zhao Qinghe, an analyst at the National Bureau of Statistics, said that Chinese companies still face unresolved problems in their operations, noting that many firms are reporting increased competition and insufficient demand.

As we have reported earlier, China Aims to Be Driving Force for World Economic Recovery.