China’s NBS manufacturing PMI disappointed at 49.0 in February, extending a seven-month contraction and touching a seven-year low (Consensus: 49.4). The decline was led by a moderation in new orders (48.6, previous: 49.5) and production (50.2, previous: 51.4). The disappointing PMI reading was also accompanied by a deterioration in employment conditions (47.6, previous: 47.8) and the import index (45.8, previous: 46.4). The sub-components which improved over the month were new export orders (47.4, previous 46.9), the input price index (50.2, previous: 47.9) and business expectations (57.9, previous 44.4). By firm size, small enterprises dragged down the headline PMI significantly, and large enterprises dipped into contraction territory for the first time since September 2015. The Caixin final PMI also showed a further decline to 48.0 in February (previous: 48.4), and remained in contraction territory for the 12th consecutive month.
Overall, the data indicates that manufacturing activity still slowed due to the impact of China spring festival. But as the input prices and expectations data improve, it indicates that the economy is expecting an upturn going forward, especially considering further monetary and fiscal policy expansion.