China's factory activity has contracted for a second straight month in February, according to official data released on Wednesday, highlighting ongoing challenges in the world's second-largest economy. The National Bureau of Statistics reported that the official manufacturing purchasing managers index (PMI) slipped to 49 from 49.3 in January, reaching a four-month low. This figure, based on a monthly survey of factory managers, uses a scale of 0 to 100, with readings below 50 indicating contraction.
Seasonal Factors and Domestic Weakness
Huo Lihui, a chief statistician at the National Bureau of Statistics, attributed the weaker data to seasonal factors, including the Lunar New Year holiday, which lasted for nine days in mid-February this year. However, the recent return to negative territory signals more persistent weakness in manufacturing, particularly under sluggish domestic consumption and demand. December's manufacturing PMI reading of 50.1 had briefly broken China's eight consecutive months of contraction, but the latest figures suggest a renewed downturn.
Private Sector Offers Brighter Outlook
In contrast to the official data, a separate private sector PMI survey by Chinese credit research and analysis company RatingDog, also released on Wednesday, appeared more upbeat. It showed a February PMI reading of 52.1, up from 50.3 in January, remaining in expansion territory and marking the sharpest expansion since December 2020. This private survey typically better reflects trends among smaller and more export-focused private companies.
Yao Yu, founder of RatingDog, noted in a statement that overseas demand rebounded strongly in February, with new export orders growing notably. This divergence between official and private data underscores the mixed nature of China's economic recovery.
Analysts Weigh In on Economic Trajectory
Lynn Song, chief economist for Greater China at ING Bank, commented in a research note that the mixed bag of manufacturing PMI data suggests a similar trajectory to what was observed in 2025. "Resilient external demand is continuing to drive growth, while domestic demand has been disappointingly soft," Song said.
Zichun Huang, a China economist at Capital Economics, added in a recent note that the Supreme Court ruling last month against Trump's reciprocal tariffs, which resulted in reduced U.S. tariffs globally including for China, is likely to provide a "small boost" to exports and manufacturing activity over the coming months.
Potential Positive Developments Ahead
U.S. President Donald Trump's planned meeting with Chinese leader Xi Jinping in April, which could bring about an extended trade truce between the two countries, may also offer positive news for Chinese manufacturers. However, analysts caution that China's domestic demand weakness is expected to continue as a problem, with a prolonged real estate sector downturn dragging on consumption and investment.
Upcoming Economic Announcements
This week, China is set to unveil its economic growth target at its annual national congress, which begins on Thursday. Economists are expecting a growth target of 4.5% or above. The congress, lasting around a week, will also approve Beijing's five-year policy blueprint for 2026-2030, with an expected focus on areas such as boosting technological advancements and self-reliance.
Overall, while the official manufacturing data points to contraction, the private sector's expansion and potential tariff reductions offer some hope for a modest recovery in the months ahead, though domestic challenges remain a significant hurdle.
