Hina manufacturing activity increased in March for the first time in six months, an official factory survey showed on Sunday, providing relief to policymakers even as a crisis in the real estate sector continues to weigh on the economy and confidence.
The official purchasing managers' index (PMI) rose to 50.8 in March from 49.1 in February, above the 50 mark that separates growth from contraction and beating the median forecast of 49.9 in a Reuters poll.
Recent positive indicators suggest the world's second-largest economy is slowly getting back on better footing, prompting analysts to raise their growth forecasts for the year. Since China's strict COVID containment measures were lifted at the end of 2022, policymakers have been grappling with the ongoing economic slowdown.
“March data shows the economy is poised for a strong end to the first quarter,” China Beige Book, a consultancy, said in a note last week. “Hiring saw the longest increase since the end of 2020. Manufacturing picked up, as did retail.”
But the deep slump in the Asian giant's real estate sector remains a major drag on growth, testing the health of heavily indebted local governments and the balance sheets of state-owned banks.
The official non-manufacturing PMI, which includes services and construction, rose to 53 from 51.4 in February, the highest since September.
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Prime Minister Li Qiang announced an ambitious economic growth target of around 5 percent for 2024 at the annual meeting of the National People's Congress, China's rubber-stamp parliament, earlier this month.
But analysts say policymakers will need to deploy much more stimulus to achieve that goal because they cannot rely on the low 2022 statistical base that flattered 2023 growth data.
Citi on Thursday raised its economic growth forecast for China this year to 5.0 percent from 4.6 percent, citing “recent positive data and policy implementation.”
China's Cabinet approved a plan on March 1 aimed at boosting major equipment upgrades and sales of consumer goods. The country's chief state planner said at a news conference earlier this month that the plan could generate market demand of over 5 trillion yuan ($691.63 billion) a year.
Many analysts fear that China could be flirting with Japanese-style stagnation later this decade unless policymakers take steps to shift the economy toward household consumption and market allocation of resources and move away from heavy reliance on infrastructure investment problems that were observed in the past.
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