The manufacturing sector in China has contracted for a fifth consecutive month in February, highlighting ongoing weaknesses in the economy. The official purchasing managers index (PMI) dropped to 49.1 from 49.2 the previous month, remaining below the 50 mark that separates expansion from contraction.

Policy Support Anticipated Ahead of Annual Legislative Meetings

Despite Beijing's efforts to support the economy by reducing lending rates and cutting banks' reserve requirements, the manufacturing PMI has declined in ten of the last eleven months, with only a slight increase observed in September.

Mixed Signals with Caixin Survey

A separate survey by Caixin showed a slight increase in manufacturing PMI from 50.8 to 50.9, indicating some positive momentum in the industry. Capital Economics suggested averaging across both PMIs for a clearer picture of industry conditions, noting that the headline manufacturing reading remained steady at 50.0.

Impact of Lunar New Year Holidays

The readings for February may also be influenced by the weeklong Lunar New Year holidays when factories are typically inactive. This factor might have skewed the data slightly, affecting the overall assessment of manufacturing activity.

Non-Manufacturing Sector Shows Growth

In contrast to manufacturing, the non-manufacturing PMI, which includes services and construction, rose to 51.4 from 50.7 in January. This increase, attributed to heightened consumption during the Lunar New Year holidays, marks the highest reading since September last year.

Focus on Fiscal Measures and Economy's Recovery

As the National People's Congress meetings approach in early March, Beijing is expected to prioritize fiscal measures to stimulate the economy. Efforts will target boosting consumption, encouraging investment, and restoring confidence in the stock market following a period of uneven recovery post-COVID.

Outlook for China's Economic Growth

Amidst challenges such as a property crisis and a slowing economy, China is set to announce its annual GDP growth target at the upcoming NPC meetings. The world's second-largest economy aims to navigate through obstacles and foster sustainable growth in the months ahead.

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