^{Photo: Bloomberg.com}

China’s factory sector lost momentum in February, with official data showing a sharper-than-expected contraction as an unusually long Lunar New Year holiday disrupted production schedules and shipments. The latest figures highlight the uneven nature of the country’s economic recovery, even as export-oriented firms reported stronger activity.

According to the National Bureau of Statistics, the official manufacturing Purchasing Managers’ Index fell to 49.0 in February, down from 49.3 in January and below market expectations of 49.1. Any reading below the 50 threshold signals contraction. February marked the second consecutive month that the index remained in negative territory, matching the subdued levels recorded in April and October 2025.

The broader composite PMI, which tracks both manufacturing and services activity, slipped to 49.5 from 49.8 a month earlier. Meanwhile, the non-manufacturing PMI, covering services and construction, edged down to 49.5 as well, indicating that weakness extended beyond factory floors into other parts of the economy.

Holiday Effects and Seasonal Distortions

Officials attributed much of the downturn to the timing and length of this year’s Lunar New Year holiday. The break ran from February 15 to February 23, making it the longest on record. With factories closing for more than a week and logistics networks slowing, output and new orders were inevitably affected.

Seasonal distortions frequently complicate year-on-year and month-on-month comparisons during this period, particularly when the holiday shifts between January and February. Many manufacturers temporarily suspend operations, delay shipments and scale back staffing, which weighs on headline indicators such as PMI.

Preliminary data, however, suggested that consumer-facing sectors experienced a holiday boost. Domestic travel volumes rose, entertainment venues saw higher footfall and duty-free retail spending increased compared with last year’s holiday period. These gains may partially offset industrial softness but have not yet translated into broader manufacturing resilience.

Private Survey Paints a Different Picture

In contrast to the official data, a private sector survey showed a markedly stronger performance. The Caixin China General Manufacturing PMI, compiled by S&P Global, jumped to 52.1 in February. That reading marked the strongest expansion since December 2020 and signaled solid growth in output and new orders.

The private survey indicated a sharp pickup in export demand, with new export orders rising at the fastest pace in more than three years. Analysts noted that improved global demand, combined with competitive pricing and currency effects, supported Chinese exporters during the month.

The divergence between the two PMIs is not unusual. The official index surveys more than 3,000 companies across a broad range of industries and is compiled at month-end. By comparison, the Caixin survey focuses on a smaller sample of primarily export-driven small and medium-sized enterprises and is conducted earlier in the month. As a result, the private reading often captures shifts in external demand more quickly.

Deflation Pressures and Structural Headwinds

Despite pockets of strength, China’s broader economic environment remains challenging. The world’s second-largest economy continues to grapple with deflationary pressures that have persisted since the post-pandemic reopening. Producer prices have been subdued, and consumer inflation has struggled to gain consistent traction.

A prolonged downturn in the property sector has weighed heavily on investment and household confidence. Real estate once accounted for nearly a quarter of China’s economic activity when related industries are included. Sluggish home sales, financing constraints for developers and cautious consumer sentiment have constrained growth momentum.

The labor market has also shown signs of strain, particularly among young workers. Weak job prospects and slower income growth have dampened consumption, limiting the effectiveness of earlier stimulus measures.

Policy Signals Ahead of Key Meetings

The latest PMI data arrives just as Beijing prepares to outline its economic priorities at a major parliamentary session. Economists widely expect policymakers to lower this year’s official growth target to a range between 4.5 percent and 5 percent, down from the “around 5 percent” goal maintained over the past three years.

Investors are closely watching for signals on fiscal spending, infrastructure investment and potential support for the property sector. Analysts anticipate a moderate increase in government-backed investment if growth continues to lose steam. However, authorities are also balancing debt sustainability concerns and financial stability risks.

Upcoming inflation data, including consumer and producer price indices, will provide further clarity on underlying demand conditions. If deflationary trends persist alongside soft manufacturing readings, policymakers may face mounting pressure to deploy additional stimulus tools.

For now, February’s contraction underscores the fragility of China’s industrial recovery. While export-driven firms appear to be benefiting from improved external demand, domestic production remains sensitive to seasonal disruptions and structural headwinds. The coming months will reveal whether the rebound seen in private surveys can translate into broader, sustained momentum across the manufacturing sector.