The March manufacturing Purchasing Managers' Index (PMI) reached 50.4, marking a month-on-month increase of 1.4 percentage points. This performance is largely in line with seasonal patterns. The Spring Festival holiday began on February 15 this year. In years with similar holiday timing—2015 (February 18), 2018 (February 15), and 2024 (February 10)—the March PMI increased by 0.2, 1.2, and 1.7 percentage points, respectively. The 2015 figure was affected by a reserve requirement ratio cut in early February, which raised the baseline February PMI. The increases in 2018 and 2024 were broadly comparable to this year’s reading.
Among the three key soft indicators released so far, the Emerging Industries PMI (EPMI) showed the strongest relative performance in March, indicating that emerging sectors continue to enjoy higher activity levels. The manufacturing PMI improved moderately, while the Business Conditions Index (BCI), which incorporates year-on-year comparisons in its design, dipped slightly compared to January-February levels, though it remained above the November-December 2023 readings. This may reflect greater sensitivity among smaller firms to cost and supply chain fluctuations. Overall, economic activity has started the year at a reasonable pace. High-frequency models project first-quarter real GDP and nominal GDP growth rates of 5.07% and 5.47% year-on-year, respectively.
Both supply and demand components of the PMI improved in March. High-tech, equipment manufacturing, consumer goods, and energy-intensive industries all saw expansion on both a monthly and yearly basis. The production and business activity expectation index also rose. Notably, the new export orders index increased by 4.1 percentage points month-on-month—the largest gain among supply-demand indicators—and reached its highest level since May 2024. Despite escalating geopolitical tensions in the Middle East, export fundamentals appear unaffected so far. For example, fuel shortages in Southeast Asia have boosted demand for Chinese electric vehicles.
The raw materials purchase price index and the ex-factory price index both continued to rise, suggesting a likely further increase in the Producer Price Index (PPI). However, the rate of increase in raw materials prices in March was significantly steeper than that of ex-factory prices, causing the spread between ex-factory and raw materials prices—a proxy for profit margins—to narrow to -8.5. This aligns with trends in the BCI data, which indicated that corporate profit expectations in March lagged behind revenue expectations. Rising oil prices and heightened uncertainty have heightened concerns about profit compression. Official data also noted that a higher proportion of firms reported elevated raw material and logistics costs due to significant price increases in petroleum and chemical products, coupled with rising freight rates.
The construction PMI rose by 1.1 percentage points to 49.3, reflecting the gradual resumption of work at construction sites after the holiday. However, the recovery in this sector remains modest, with the business activity expectation index even dipping slightly from the previous month. This may be attributed to divergences between infrastructure and real estate investment—data from January to February showed infrastructure investment up 11.4% year-on-year, while new housing starts fell 23.1%. It may also reflect mismatches between funding availability and actual construction schedules. Recent data showed a 25.33% week-on-week increase in cement deliveries for infrastructure projects, though the figure was still down 8.74% compared to the same lunar period last year. Funding conditions vary by region, with some areas experiencing smoother project resumption than others. Additionally, the construction sector faces short-term cost pressures from rising oil prices; the input price sub-index under the construction PMI rose 3.6 percentage points in March.
The services PMI edged up 0.5 percentage points to 50.2, returning to expansion territory and marking a continued improvement. Still, like manufacturing and construction, overall activity levels remain relatively subdued, and the business expectation index also retreated. Boosting consumption remains a long-term challenge. One notable detail is that the services sales price index also rose above 50, reaching its highest level since October 2023, suggesting that the Consumer Price Index (CPI) is also on an upward trend.
In summary, the strengths and weaknesses of the March PMI data are fairly clear. Key positives include: 1) all three major sectors showed varying degrees of improvement, with manufacturing and services returning to expansion, reinforcing expectations of steady first-quarter growth; 2) export orders showed strong monthly growth, indicating that exports remain a key driver of the economy in the near term despite external uncertainties; and 3) both price levels and nominal growth continue to show a clear improving trend. On the downside: 1) neither construction nor services have established a strong upward trend—these sectors are closely linked to cyclical and consumer activity, respectively, meaning market divergence is likely to persist in the short term; and 2) rising costs are beginning to squeeze profit margins, making future geopolitical and oil price trends particularly critical.