China's factory PMI hit 50.4 in March, the strongest in a year

China posted its strongest factory activity in a year during March. At the same time, international investment banks are viewing the country as a safer bet than regional competitors amid the Middle East mess.

The National Bureau of Statistics said Tuesday that China’s Manufacturing Purchasing Managers’ Index hit 50.4 last month. That beat analysts’ expectations; they had forecast 50.1 in a Reuters survey. The reading is a turnaround from two straight months of decline. The index was at 49.3 in January and 49.0 in February. Anything above 50 means growth. Below that means shrinkage.

Huo Lihui works as chief statistician at the statistics bureau. He said factories sped up operations after a long national holiday in mid-February. That’s what drove March’s gains. Production and new orders both grew during the month. But measures tracking raw materials stockpiles, jobs, and delivery times stayed negative.

The services sector did better too. The non-manufacturing index covers industries like tourism. It went up to 50.1 from February’s 49.5.

Exports jump despite rising costs

Export numbers from the first two months of 2026 came in strong, up 21.8 percent from the same period last year. The increase went way past predictions. Healthy demand from Southeast Asia and Europe made up for weaker shipments to the United States.

But the conflict in the Middle East has started hitting costs. Price measures for raw materials and factory outputs rose 63.9 percent and 55.4 percent. Huo said higher shipping costs and pricier imported goods, such as crude oil and chemicals, have squeezed companies surveyed by the bureau.

Another survey from RatingDog and S&P Global comes out Wednesday. It’s expected to show a drop to 51.6 in March from February’s five-year high of 52.1, according to a Reuters poll.

Stocks outperform regional peers

Manufacturing showed strength, but there’s more to the story. Chinese stocks have held up better than others in the region as the month-long war in Iran has rattled global markets. The conflict shut down the Strait of Hormuz. That passage accounts for about one-fifth of global oil and gas flows. Crude prices jumped. Equities across the globe got dragged down.

China’s benchmark Shanghai Composite Index fell 6 percent through March. Compare that to South Korean stocks, which dropped 18 percent, and Japan’s Nikkei, down about 13 percent.

Big investment banks noticed. J.P. Morgan picked China as its top choice in the region this month. The bank pointed to the country’s limited reliance on Gulf energy and strong ability to provide government support. HSBC kept its “overweight” stance on China. The bank talked about defensive qualities backed by a mostly domestic investor base and a steady currency.

BNP strategists said China’s better performance compared to the rest of Asia will likely become more pronounced the longer the U.S.-Israel war with Iran drags on. William Bratton, head of Asia-Pacific cash equities research at BNP Paribas, said: “From this perspective, we believe China’s equity markets will become increasingly attractive.”

Goldman Sachs analysts said the Chinese economy looks better prepared than several global competitors to handle the oil supply shock. They pointed to years of energy diversification, growing strategic oil reserves, and access to supplies from outside the Middle East.

Beijing secures oil supply through direct Iran deals

China has been working directly with Tehran to keep Chinese-flagged ships moving. More than 11 million barrels of Iranian crude flowed east in the first weeks of the conflict. Payment came in renminbi through China’s Cross-Border International Payment System.

Iran provides 13 percent of China’s oil imports at discounted rates. The two countries have been locked into a 25-year cooperation deal since 2021. It’s worth 400 billion dollars. Iran sells oil below market prices. China provides investment and security cooperation in return.

China had prepared for potential supply problems. It boosted oil imports in January and February by 16 percent. Russia shipped around 300,000 extra barrels daily to China. Strategic and commercial reserves now sit between 1.3 billion and 1.4 billion barrels. That’s enough to cover about four months of imports.

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