China Caixin Manufacturing PMI Rises to 50.8 as US Tariffs Loom; Hang Seng Index Up

China’s Manufacturing Gains Momentum—Will US Tariffs Change the Narrative?

On Monday, March 3, China’s economy took center stage as President Trump’s tariffs loomed. The prospects of a full-blown US-China trade war likely spurred pre-tariff front-loading, with firms looking to avoid higher prices.

In February, the Caixin Manufacturing PMI climbed to 50.8, up from 50.1 in January, signaling a pickup in sector activity. While the headline PMI moved further above the neutral 50 level, the February Survey unveiled some key trends:

• Improving domestic and overseas demand contributed to an upswing in new orders.
• New export business increased for the first time since November, though this may reflect firms rushing orders ahead of expected tariffs rather than a sustainable rebound.
• Despite rising orders and higher output, firms reported lower staffing levels, marking the sixth consecutive month of declines.
• Sentiment across the manufacturing sector improved for the second month in February, nearing the long-run average.
• Input prices increased in February, albeit marginally. Meanwhile, output prices fell for the third successive month.

The February PMI report underscored vulnerabilities in China’s economy, which could be exacerbated by upcoming US tariffs. Rising unemployment may undermine Beijing’s stimulus measures, which aim to boost domestic consumption. A weakening labor market could pressure wages, consumer sentiment, and spending, further complicating China’s economic outlook.

Expert Views on China’s Manufacturing Sector

Dr. Wang Zhe, Senior Economist at Caixin Insight Group, commented on February’s survey:

“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.”

Looking ahead, Dr. Zhe 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.”

The Market Reaction to the Caixin Manufacturing PMI

Markets reacted swiftly to the Caixin Manufacturing PMI data, with equities and forex markets reflecting shifting sentiment.

Before the PMI data, the Hang Seng Index climbed to a high of 23,251. However, in response to the February PMI report, the Index jumped to a high of 23,340. On Monday, March 3, the Index was up 1.61% to 23,310 for the morning session.

In the forex market, the AUD/USD reacted positively to the PMI data, rising from $0.62245 to a post-report high of $0.62301. On Monday, the AUD/USD was up 0.38% to $0.62271.

The Aussie dollar remains highly sensitive to economic data from China. Australia has a trade-to-GDP ratio exceeding 50%, with China accounting for one-third of its exports. This exposure leaves the Aussie vulnerable to a potential escalation in US-China trade tensions.

What’s Next? US Tariffs Take Effect on Tuesday

On Tuesday, March 4, the US administration is due to introduce 10% tariffs on Chinese goods. Investors should remain vigilant as retaliation to the US tariffs and a full-blown trade war could impact demand for Hang Seng Index-listed stocks and weigh on the Aussie dollar.

Discover strategies to navigate this week’s market trends here.