China's factory activity unexpectedly slumped in February, as manufacturers paused production and cargo shipments to celebrate an extended Lunar New Year holiday. The official manufacturing purchasing managers index (PMI) fell to 49, missing economists' forecasts of 49.1. This contraction marks a second consecutive month, mirroring the levels seen in October and April 2025. The composite PMI, a broader measure, dropped to 49.5, while the non-manufacturing PMI, covering services and construction, edged down to 49.5. The decline is attributed to holiday disruptions and festival timing distortions. However, a private survey by S&P Global revealed a sharp rebound in manufacturing activity, with the RatingDog China General Manufacturing PMI surging to 52.1, the highest since December 2020. This rebound is fueled by strong new export orders, indicating a notable increase in international demand. The official figures also suggest a rise in travel, entertainment spending, and duty-free shopping during the holiday. Despite these fluctuations, China's economy grapples with deflationary pressures post-pandemic, exacerbated by a prolonged property downturn and a weak job market. Beijing's upcoming parliamentary meeting will set economic targets, with economists anticipating a growth target reduction to 4.5-5%, down from the previous 5%. The meeting will provide insights into Beijing's future policy stance, especially regarding investment strategies.
