Accelerated Growth in China's Manufacturing and Services Sectors in March

March witnessed a notable uptick in activity across both the manufacturing and services sectors in China, signaling robust economic momentum in the world's second-largest economy, according to recent surveys by Caixin/S&P Global.

The services purchasing managers' index (PMI) increased slightly to 52.7 from 52.5 in February, marking continued expansion above the crucial 50.0 threshold for the 15th consecutive month. This improvement was driven by a rapid increase in new business, the fastest since December of the previous year, fueled by stronger underlying demand and strategic efforts to enhance order volumes. Although this boost in services activity led to heightened business confidence, it did not translate into increased employment, with the sector seeing a reduction in workforce numbers for the second consecutive month.

Simultaneously, the manufacturing sector also experienced significant growth, with the Caixin/S&P Global manufacturing PMI climbing to 51.1 in March from 50.9 in February—its strongest since February 2023 and higher than market expectations. This expansion was supported by an uptick in both domestic and overseas demand. However, despite improvements in output and optimism, concerns persist over employment and prices, with continued contraction in workforce numbers and a fall in producer and consumer prices.

The robust performance in manufacturing aligns with data from China's National Bureau of Statistics, which reported the official manufacturing PMI at 50.8, its strongest in nearly a year. Additionally, the non-manufacturing sector also showed strong performance, contributing to a promising but cautious narrative about China's economic recovery.

These indicators suggest that while China's economy is showing signs of stabilizing and potentially gearing up for sustained growth, there are still challenges ahead, particularly regarding the labor market and price stability. The government's target of around 5% growth for 2024 may require more substantial stimulus measures, especially given the deflationary trends affecting both producers and consumers.