Boosted by a dual recovery in domestic and external demand alongside effective promotional strategies, China's manufacturing and service sectors both experienced a strong rebound in business activity during February. The composite output index reached its highest level in nearly three years, sending a positive signal to the market that the momentum for economic expansion has significantly strengthened.
The latest Purchasing Managers' Index (PMI) data for China, jointly released on March 4th, showed the RatingDog Composite PMI rising to 55.4 in February, marking a 33-month high.
The RatingDog Manufacturing PMI for February registered at 52.1, up from a previous value of 50.3.
New orders in February saw their fastest growth rate since December 2020, with the rate of increase for new export orders hitting a high not seen since September 2020. Production output recorded its strongest increase since June 2024. Increased demand for raw materials pushed the rate of input price inflation to a 44-month peak.
The RatingDog Services PMI for February came in at 56.7, a significant increase from the previous reading of 52.3.
New business in the services sector grew at its fastest pace in six months during February, while selling prices saw their most substantial rise in 21 months.
The manufacturing sector exhibited robust performance in both supply and demand, with export orders experiencing a powerful surge. The core highlight for the sector this month was the substantial and better-than-expected improvement on the demand side. The recovery in market demand directly led to production lines operating at full capacity. Data indicates that new order volumes increased for the ninth consecutive month, registering the fastest rate of growth since December 2020. The contribution from overseas markets was particularly notable.
A founder of RatingDog commented directly: "The RatingDog China Manufacturing PMI rose to 52.1 in February, indicating a clear expansionary trend. Looking at the sub-indices, the simultaneous strengthening of both supply and demand was the core driver behind this month's data improvement. Momentum in both demand and production rebounded comprehensively, with the overall rate of new order growth accelerating. Specifically, the growth rate of new export orders reached its highest level since September 2020."
The surge in orders quickly transmitted to production and procurement activities. February's production output saw its strongest increase since June 2024, and the rate of growth in purchasing activity also reached its fastest since November 2024. Due to the acceleration in production, finished goods inventories, which had been declining consecutively, finally stabilized.
The services sector demonstrated strong acceleration, with profit pressures marginally easing. Compared to manufacturing, the resilience of the services sector was even more pronounced this month. The Services PMI reading of 56.7 was substantially higher than the previous 52.3. This improvement was driven not only by the effects of domestic promotional activities but also augmented by incremental gains from the international expansion of services like tourism.
Regarding the issue of profit margins in the services sector, which is of high concern to investors, this month's data provided a crucial signal of a potential "inflection point."
The founder pointed out: "Key changes have appeared in the price indicators. Although the rate of input cost inflation rose, it maintained a slow pace. Against the backdrop of strengthening demand, service providers' pricing power increased, with the selling prices index recording its highest value in 21 months. As cost pass-through became smoother, profit pressures within the industry saw a marginal easing."
Concurrently, the repair of endogenous growth drivers was quite significant. The founder emphasized: "The services sector showed strong expansion momentum in February, with characteristics clearly driven by domestic demand. Companies successfully passed on more costs downstream, leading to some alleviation of profit pressures."
Looking ahead, regarding the future direction of business sentiment, the founder offered an objective outlook: "Whether manufacturing can maintain its high growth rate going forward depends on the resilience of demand and whether corporate confidence translates into actual hiring and investment. The convening of the National 'Two Sessions' in March may also help stabilize confidence and expectations to some extent. It is anticipated that the Manufacturing PMI will remain in expansionary territory in the short term." He also cautioned that "uncertainties in the external environment and weakness in employment could, to some degree, constrain the sustainability of the current positive momentum."