On March 4, the National Bureau of Statistics released China's Purchasing Managers' Index (PMI) data for February. The manufacturing PMI for February was 49.0%, a decrease of 0.3 percentage points from the previous month, indicating a decline in the manufacturing sector's activity level.

The non-manufacturing Business Activity Index for February was 49.5%, up by 0.1 percentage points from the previous month, showing an improvement in the non-manufacturing sector's activity level.

The Composite PMI Output Index for February was 49.5%, down by 0.3 percentage points from the previous month, suggesting an overall slowdown in the production and operational activities of Chinese enterprises compared to January.

The decline in the February manufacturing PMI is attributed to the impact of the Spring Festival holiday. The manufacturing PMI fell by 0.3 percentage points to 49.0% in February, marking a second consecutive month of decline and remaining in contraction territory. Historical data indicates that PMI figures for the month containing the Spring Festival often exhibit some volatility. This year, the extended holiday period, which fell entirely in mid-to-late February, affected business operations, leading to an overall decrease in manufacturing market activity. Among the sub-indices, all five components remained in contraction territory, with four declining and one increasing. The Production Index was 49.6%, down 1.0 percentage points; the New Orders Index was 48.6%, down 0.6 percentage points; the Raw Materials Inventory Index was 47.5%, up 0.1 percentage points; the Employment Index was 48.0%, down 0.1 percentage points; and the Supplier Delivery Time Index was 49.1%, down 1.0 percentage points. The significant 1.0 percentage point drop in the Production Index was the primary reason for the decline in the February manufacturing PMI. The Spring Festival occurred in February this year, with one additional holiday day, leading to employee leave and large-scale migration of migrant workers returning home, which contributed to the drop in the production index. On the demand side, the New Orders Index fell by 0.6 percentage points, and the New Export Orders Index dropped sharply by 2.8 percentage points to 45.0%, reflecting a downturn in demand. Overall manufacturing market demand tightened, primarily due to the continuing effects of seasonal factors. Firstly, the extended holiday in mid-to-late February significantly impacted order acceptance and production scheduling for manufacturing enterprises, particularly in upstream and midstream industries. This factor affected both domestic and international demand. Secondly, persistent low temperatures in many parts of China continued to impact outdoor construction activities, leading to a corresponding contraction in demand for related equipment, facilities, and raw materials. Consequently, both domestic and international demand for the manufacturing sector tightened in February. However, this tightening is mainly a short-term phenomenon driven by seasonal factors, with a foundation for stable demand recovery in the long run. Regarding prices, among the two price indices within the manufacturing PMI, one remained flat and one declined. The Ex-Factory Price Index held steady at 50.6%, while the Main Raw Material Purchase Price Index fell by 1.3 percentage points to 54.8%. Both indices remained in expansion territory, indicating a continued upward trend in industrial product prices. This trend is supported by factors such as rising crude oil prices driven by tensions in Iran, high prices for international commodities like copper due to the global AI investment boom, and ongoing domestic efforts against involution. It is anticipated that the Producer Price Index (PPI) will continue its month-on-month upward trend in February, with the year-on-year decline narrowing further to around -1.2%. Future developments regarding the situation in Iran and its impact on international oil prices warrant close attention.

The overall activity level in the non-manufacturing sector showed improvement, with the service sector's activity level rising. The non-manufacturing Business Activity Index for February was 49.5%, an increase of 0.1 percentage points from the previous month, indicating an improvement in the overall activity level of the non-manufacturing sector. Within this, the Services Business Activity Index was 49.7%, up by 0.2 percentage points from the previous month. Driven by the Spring Festival holiday effect, industries related to resident travel and consumption experienced rapid growth in business volume. The Business Activity Indices for sectors such as accommodation, catering, culture, sports, and entertainment were all in high景气区间 above 60.0%, while indices for retail and air transport rose above 52.0%. Conversely, the Business Activity Indices for capital market services and real estate remained low, indicating subdued market activity. However, it was noted that the Services PMI has been in contraction territory for four consecutive months as of February, potentially signaling an expectation for increased policy support to promote service consumption. In the construction sector, the Business Activity Index fell to 48.2%, down 0.6 percentage points from the previous month, as the concentration of workers returning home for the Spring Festival and the suspension of some construction projects led to a continued decline in the sector's activity level.

Subsequently, the manufacturing PMI is expected to experience a significant seasonal rebound. Analysis of the February economic indicators revealed three characteristics. First, the service sector, supported by the historically long holiday, demonstrated stronger-than-seasonal performance due to high resident travel willingness. Second, the construction sector experienced a seasonal decline, but post-holiday work resumption rates and market expectations are relatively positive, suggesting a potential accelerated recovery in March. Third, the manufacturing sector's performance was largely in line with seasonal patterns, with the holiday factor having a more pronounced impact on exports and a greater drag on small and medium-sized enterprises. It is anticipated that the March manufacturing PMI will see a substantial seasonal increase. Historical data shows that, excluding extreme years, the manufacturing PMI for the month following the Spring Festival has increased by an average of 0.7 percentage points over the past decade. Regarding the non-manufacturing sector, after the Spring Festival, with the arrival of the production and construction season and the comprehensive resumption of work and production, the commencement of key projects is expected to boost the activity levels of investment-related construction and producer services. Meanwhile, influenced by the high base effect of Spring Festival consumption, the activity level of consumption-related services may decline somewhat. However, the gradual resumption of social activities is also expected to help stabilize the activity level in consumption-related service industries.