China: PMI expansion masks risks – Commerzbank

Commerzbank’s Dr. Henry Hao notes that China’s March PMIs show manufacturing back in expansion, supported by restocking, government spending and resilient exports, while non-manufacturing also edges above 50. However, he stresses that rising input costs are squeezing margins, domestic demand remains weak, and external risks from the Middle East conflict and US-China trade tensions threaten China’s 4.5%–5.0% growth target.

Manufacturing rebounds but vulnerabilities persist

"China’s March PMIs indicate a return to manufacturing expansion driven by active restocking and resilient exports, defying geopolitical shocks. However, surging input costs are squeezing profit margins. Furthermore, underlying domestic demand weakness and vulnerabilities to a broader global economic slowdown present significant ongoing risks."

"China’s factory activity returned to expansion in March. The official manufacturing purchasing managers’ index (PMI) rose to 50.4 from 49.0 in February. The headline figure largely met our expectations of 50.2 and slightly beat Bloomberg consensus of 50.1."

"A deeper dive into the manufacturing PMI sub-indices points to active restocking in the current inventory cycle. The new order sub-index jumped to 51.6 from 48.6 in February. Meanwhile, the finished goods inventory sub-index rose to 46.7 from 45.8 previously."

"The March figures echo our observation that the escalating conflict in the Middle East has had a limited direct impact on China’s core economic engine so far. Beijing’s strategic oil reserves and increasing reliance on renewable energy are currently cushioning the broader economy. On the flip side, the current environment could potentially benefit Chinese producers."

"Looking ahead, the outlook hinges on the duration of the Middle East conflict and its corresponding effect on global inflation. In addition, the initiation of mutual trade investigations between the US and China ahead of President Trump’s planned state visit in May introduces further uncertainty. These compounding factors pose risks to China’s annual economic growth target of 4.5% to 5.0%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)