The Caixin China General Manufacturing Purchasing Managers' Index (PMI) dropped 1.6 points from the previous month to 50 in March, signaling stable business conditions at the end of 2023 Q1. The report from Caixin highlights key areas within the manufacturing industry: softer rises in production and new orders, improved supply chains, and strong optimism on future growth.

Softer rises in production and new orders

After a solid growth in February, Chinese manufacturers registered softer gains at the end of Q1 2023. The sustained upturn in demand supported further increases in purchasing activity, while cautious approaches to stock building caused inventories to fall. Although many firms reported improved customer demand due to the easing of pandemic measures, some experienced sluggish sales, particularly from overseas markets. New export business declined in March, though the contraction rate remained mild.

Supply chains improve for second month running

Supplier performance improved for the second consecutive month, easing cost pressures and stabilizing input costs. This improvement was attributed to increased supplier capacity and stock availability amid relaxed COVID-19 restrictions. It marked the third time since 2018 that lead times have shortened.

Optimism around the outlook remains strong

Chinese manufacturers remained highly upbeat about output growth over the next year, with growth projections supported by forecasts of improved market demand, higher client numbers, and new product developments.

Despite positive developments in the manufacturing sector, setbacks emerged. Employment in the sector weakened, with the labor market contracting in March following an expansion in February. Firms refrained from replacing voluntary leavers, opting to trim costs instead, according to Dr. Wang Zhe, Senior Economist at Caixin Insight Group. Correspondingly, backlogs of work did not grow as fast as it did in February.