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 marks a second consecutive month of contraction, mirroring levels seen in October and April 2025. The composite PMI, tracking manufacturing and services, 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 distortion effects from the festival timing. 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 surge is driven by strong new export orders, indicating a notable pickup in international demand. The official figures also pointed to increased 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 is set to announce economic targets at its parliamentary meeting, with economists anticipating a lower growth target of 4.5% to 5%, down from the previous three years' target of around 5%. The upcoming economic-planning meeting will provide insights into Beijing's policy stance and potential investment strategies.
