The Caixin March Manufacturing PMI for China rose to 51.2, surpassing February’s 50.8 and expectations of 51.1, marking six consecutive months of expansion. The official Manufacturing PMI for March was 50.5, aligned with forecasts.
Output and demand showed positive trends, with production and new orders increasing. Employment improved slightly, marking a return to growth for the first time since August 2023.
Cost Dynamics And Inflation Signals
Input costs decreased for the first time in six months, while output prices fell for the fourth month running. Supplier delivery times lengthened, and firms reduced finished goods inventories despite stocking up on raw materials.
Manufacturers expressed optimism about the near-term outlook, with future output expectations exceeding the yearly average. Early 2024 economic indicators suggest stability and slight improvement, although labour market weaknesses and deflation remain due to low domestic demand.
The government aims to enhance consumption through measures targeting employment, income growth, and financial support for households, with calls for stronger macro policy actions in 2025 to aid recovery in a challenging global environment.
The stronger-than-expected rise in March’s Caixin Manufacturing PMI to 51.2 indicates an ongoing upswing in China’s factory activity, continuing a six-month trend above the 50 line that separates expansion from contraction. When set beside the official PMI—landing at 50.5 and in line with predictions—it paints a picture of private and smaller-scale manufacturers outpacing their state-owned peers. This divergence shouldn’t be overlooked, as it often serves as an early barometer for shifts in broader industrial momentum.
Sector Trends And Forward Expectations
It’s not just headline figures offering optimism. Production volumes grew, and incoming orders picked up pace, reinforcing hopes that domestic activity is stabilising. Particularly noteworthy is that jobs in the sector grew for the first time since August of last year—modestly, yes, but a directional shift that could matter if it continues. We’ve come to view this kind of slow but measurable progress as more durable than initially flashy numbers.
The decline in input prices after a half-year stretch of increases quietly reshapes the cost base for producers, allowing margin breathing room. But output prices continued their slide for a fourth straight month, a signal that firms remain hesitant to pass on higher costs to buyers. This underscores the current deflationary undertone—not yet receding.
Delivery times lengthened, hinting at supply-side constraints rather than sudden bursts of downstream urgency. Inventory cards are telling a different story too: while raw material stocks rose, companies still drew down on finished goods. It seems demand isn’t weak enough to leave shelves full, but not yet strong enough for stockpiling to reaccelerate.
Future sentiment among manufacturers clearly improved, rising above the past year’s average. While we acknowledge that optimism doesn’t always lead to action, forward-looking data of this nature often co-moves with capex plans. For those of us watching momentum beneath the surface, this matters.
At the macro level, early-year indicators point towards modest improvement in the broader economy. However, domestic demand continues to lag—seen most clearly in subdued consumer spending and patchy job creation outside manufacturing. Price weakness, both upstream and final, is another lingering issue, with households remaining cautious despite government intentions.
Authorities have placed more weight on stimulating demand using tools tied to employment, income, and targeted household support. They’ve floated proposals for stronger fiscal responses next year, designed to contend with what continues to be a challenging external trade environment. Private investment will rely heavily on the effectiveness of these signals in shifting expectations.
Now, looking forward, especially for traders of longer-dated instruments linked to production or inflation metrics, attention must shift to the balance between production-side resilience and downstream price softness. Nobody should be surprised if this mix maintains downward pressure on factory-gate inflation while volume-based indicators push higher. Positioning should consider this divergence carefully.
We see much of the near-term movement being set by whether forward optimism gains traction in actual purchasing and hiring behaviour. If it doesn’t, the risk is that deflation trends become more embedded. But with employment in expansion and input costs falling, there’s room for some earnings surprise at the factory level, particularly if orders flow through.
