Spring Festival slows China factory activity to one-year low

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China’s manufacturing sector veered towards minimal growth in February, the slowest rate in more than a year. As stalled construction and production weighed down business growth ahead of the lunar New Year, certain aspects of the official Purchasing Managers’ Index (PMI) showed signs of contraction.

The official gauge fell by more than one percent from January to 50.3, just above the 50-point-divide between expansion and contraction. Though large enterprises remained resilient for the month, posting a reading of 52.2, the winter season marked by sluggish demand and the annual grand migration when workers return home, has taken a heavy toll on small mid-size firms.

Business for mid-size companies shrank by 1.1%, and nearly 4% for small enterprises said the official figures published by the National Statistics Bureau, citing expected adjustments in the month of the Chinese New year.

However, analysts say that the dip cannot be attributed to seasonal changes alone and that they reflect an overall slip in demand and could indicate more heavy downward pressure for the year.

“2018 is starting off shaky these numbers show, and the spike in growth in the 2016 round of recovery seems to be behind us,” said Deng Haiqing, an analyst with JZ Securities, in a research note.

The grandest annual holiday this year appears to have affected business activities to larger extent in comparison. PMI figures for January 2017, the month the celebration fell on last year, was nearly unaffected by the Spring Festival, with only a 0.1% dip from the month before.

Starting late January China witnessed the annual Spring festival rush, with around three billion migrant workers returning home./ Reuters Photo.‍

Factory prices, new export orders, inventory and employment of workers all suggested signs of contraction in February. However, a few bright spots were still evident in this month’s figures, including the index for high tech manufacturing at a reading of 54 this month and will be above the 50 separating point.

The confidence index is at 58.2 for the month, showing that factories and companies expect business to quickly pick up as the spring months approach.

Meanwhile non-manufacturing PMI dropped by 0.9 to 54.4, 0.2 points higher than February last year.

Boosted by government infrastructure spending, a resilient property market and unexpected strength in exports, China’s manufacturing and industrial firms helped the economy post better-than-expected growth of 6.9 percent in 2017.

A sister survey showed activity in China’s service sector slowed to lowest since October last year in February. The official non-manufacturing PMI fell to 54.4 from 55.3 in January.

Spending on consumer services this month was likely boosted by the long celebrations, though the statistics bureau said property and financial services slowed. The retail and catering sectors alone posted sales of 926 billion yuan or 146 billion US dollars during the holiday period.