China’s manufacturing sector expanded after four months of slowdown. The HSBC’s flash China manufacturing purchasing manager’s index rose to 50.1, just above the 50.0 level that separates it from a growth/contraction activity on a monthly basis. This is good news for China which has seen its economic growth slip to a 24-year low in 2014, resulting in The People’s Bank of China introducing a number of stimulus packages and policy easing over the past couple of months.
However, despite the seemingly good news, analysts say that it does not paint a true picture of China’s economic activity. The increase in domestic demand could have been attributed to the rush to buy goods for families and friends during the Chinese New Year period and therefore not reflective of real domestic demand. Furthermore, weak foreign demand has also led to a decrease in the number of new export orders. It is likely that this positive news will be construed as an outlier from the broader trend of contracting factory output. It is likely that domestic and external demand for China-produced goods will continue to be sluggish for the next couple of months.