20260304-招银国际-PMI_weakened_amid_CNY_distortions_5页_607kb

China Economy Summary

Core Content

The document provides an analysis of the Chinese economy in early 2026, focusing on the performance of the manufacturing and non-manufacturing sectors, as well as the potential fiscal policies and GDP growth targets for 2026. It highlights the ongoing challenges in economic growth and the impact of the Chinese New Year (CNY) holiday on economic indicators.

Main Points

• Manufacturing PMI Weakens:
  The manufacturing Purchasing Managers' Index (PMI) dropped to 49% in February from 49.3% in January, below market expectations of 49.7%. This reflects a broad-based softening in the sector.

  • New Orders and Exports: The new order index fell to 48.6%, the largest contraction since July 2023, and the export order index declined to 45%, indicating continued export challenges.
  • Production and Prices: Production fell into contraction at 49.6%, but reflation continued as the raw material purchase price index and ex-factory price index remained in expansion at 54.8% and 50.6%, respectively.
  • Sectoral Breakdown: Food processing and computer & electronic devices showed expansion in both new orders and production, while textile & garment and auto sectors notably contracted.

• Non-Manufacturing PMI Remains in Contraction:
  The non-manufacturing PMI edged up to 49.5% in February from 49.4%, still below market expectations of 50%. The service sector PMI increased slightly to 49.7%, but the new order index dropped to 45.7%, signaling weak demand.

  • Construction: Construction PMI fell to 48.2% from 48.8%, as construction sites were largely suspended during the CNY holiday.
  • Sectoral Performance: Tourism and holiday-related activities remained prosperous, while capital market and real estate sectors contracted.

• Economic Slowdown Signals:
  A weakening property market, declining durable goods sales, and slower manufacturing suggest that growth momentum is fading in early 2026.

• Fiscal Policy Outlook:
  At the upcoming National People's Congress (NPC) meeting, policymakers are expected to maintain the fiscal deficit at around 8% of GDP. This includes:

  • A general budget deficit of RMB5.9tn (4% of GDP)
  • Ultra-long central government special bonds of RMB1.3tn (0.9% of GDP)
  • Local government special bonds of RMB4.5tn (3.1% of GDP)
  • Additional measures such as RMB500bn in central government special bonds for capital injections into banks and insurance companies, and RMB2tn in local government debt-swap bonds.

• GDP Growth Target:
  The 2026 GDP growth target is anticipated to be lowered to "4.5-5%" compared to the 2025 target of "around 5%", in line with downward revisions from recent local "Two Sessions" targets.

Key Information

• Key Sectors:

  • Manufacturing: Food processing and computer & electronic devices showed growth, while textile & garment and auto sectors contracted.
  • Non-Manufacturing: Tourism and holiday consumption remained strong, while real estate and capital markets faced challenges.
  • Construction: Suffered due to CNY-related shutdowns.

• Policy Focus:
  The upcoming NPC meeting is expected to introduce additional stimulus measures, including fiscal support and capital injections, to stabilize the economy.

• Investor Attention:
  New policy language on property stabilization and boosting domestic consumption will be key areas to monitor.

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months
• HOLD: Potential return of +15% to -10% over next 12 months
• SELL: Potential loss of over 10% over next 12 months
• NOT RATED: Stock not rated by CMBIGM
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Disclaimer and Disclosures

• Investment Risks: There are risks involved in trading any securities, and past performance does not guarantee future results.
• No Personal Advice: The report is not tailored to individual investors and should not be considered as investment advice.
• Liability Disclaimer: CMBIGM is not liable for any losses, damages, or expenses incurred from reliance on the report's information.
• Use Restrictions: The report is intended solely for the use of the intended recipients and may not be reproduced, reprinted, sold, or distributed without prior written consent.
• Jurisdiction-Specific Notes:
  • United Kingdom: The report is only provided to certain categories of investors.
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  • Singapore: The report is distributed by CMBISG, an exempt financial adviser, and may be subject to legal responsibilities depending on the recipient's status.

Analyst Certification

The primary analyst certifies that:

1. All views expressed in the report accurately reflect their personal views.
2. No part of their compensation is directly or indirectly related to the views expressed in the report.
3. They have not traded in the stocks covered in the report within 30 days prior to the report's release.
4. They will not trade in the stocks covered in the report for 3 business days after the report's release.
5. They have no financial interests in the companies mentioned in the report.