China's Manufacturing Industry Improves Ahead of US Tariff Hike

China was in the spotlight on the economics front on Monday, March 3, as President Trump’s impending tariffs caused concern. The potential for a full-scale US-China trade war prompted likely pre-tariff front-loading with firms scrambling to get ahead of expected price hikes.  

The Caixin Manufacturing PMI registered a gain of 0.7 basis points, moving from the January rating of 50.1 to the February value of 50.8, suggesting that activity was bouncing back in the sector amid stronger domestic and external demand and with new export business rising for the first time since November, most likely due to firms moving orders in advance of tariffs being set.

Dr. Wang Zhe, Senior Economist at Caixin Insight Group said, "The holiday period saw robust consumption momentum, and technological innovations in certain industries added to the positive sentiment, helping sustain the manufacturing market recovery. Nonetheless, China’s economy still faces significant challenges, with rising uncertainties in employment and household income constraining efforts to boost domestic demand and stabilize the economy".

Ordering and production were up, but employment decreased for the six straight month. Business sentiment improved for the second consecutive month, but it remained below the long-term average. Input prices increased moderately in February and output prices decreased for the third consecutive month.

He added, "March represents a critical policy window. Supportive measures should address market expectations and societal concerns, focusing on key economic bottlenecks. Meanwhile, policies should prioritize demand-side measures, strengthen countercyclical adjustments, and promote higher household income and consumer confidence".

PMI data showed the vulnerabilities in China’s economy, which could worsen with the onset of US tariffs. Rising unemployment could undermine Beijing's stimulus measures on domestic consumption, complicating the outlook. The PMI numbers came out, and the Hang Seng Index was seen up 1.61 percent and the AUD/USD up 0.38 percent. Investors are wary about the economic impact of tariffs to be imposed by the US on China, and the immediate impact on global markets and the Australian dollar.