"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 31 March: China to report March Manufacturing Purchasing Managers’ Index (PMI)
• 1 April: RatingDog to report March industrial PMI for China
• 1 April: Hong Kong to report February retail sales statistics
• 3 April: RatingDog to report March Services PMI for China

The coming week will be relatively quiet in terms of major economic data releases concerning China. Markets in Hong Kong and Taiwan will be closed next Friday, 3 April, due to a public holiday.

For PMI, leading indicators point to a meaningful improvement in manufacturing activity. In particular, the Emerging Industries Purchasing Managers’ Index (EPMI) rose sharply in March, increasing by 13 points month-on-month to 57.6 to firmly return in expansionary territory. In years with a similar Spring Festival timing such as in 2015, 2018, and 2024, the March rebound averaged lower than this year’s increase, underscoring the strength of the latest reading. Part of the recovery reflects a low base in February due to the extended holiday period. However, absolute activity levels in March were also notably strong, suggesting a robust resumption of production and business operations in emerging industries during the post‑holiday recovery window. Supply and demand conditions improved in tandem.

On a month‑on‑month basis, production and purchasing indices rose by 23.4 and 24.2 points, respectively, while product orders and export orders increased by 17.8 and 15.6 points. Both the production and new orders indices breached the 60 level, indicating broad‑based strength rather than a purely statistical recovery. Further, the balance between supply and demand appears relatively healthy. Production volume and product orders contributed 45 per cent and 41 per cent, respectively, to the overall increase in the March EPMI, reflecting symmetric gains on both sides of the business cycle. The production‑to‑demand ratio edged up to 1.7 but remained well below the peaks observed during the busy spring seasons of 2024 and 2025, suggesting that capacity expansion has not yet significantly outpaced demand growth.

Against this backdrop, the official manufacturing PMI from the China’s statistics bureau is expected to show notable improvement, particularly a return to expansion mode. The February weakness in the PMI was largely structural, driven by pronounced declines in high‑tech equipment manufacturing. A stronger‑than‑historical rebound signaled by the EPMI in March suggests that conditions in emerging manufacturing segments have improved meaningfully. Meanwhile, anecdotal evidence from traditional industries indicates better year‑on‑year performance in early March, providing additional support for a stronger headline PMI.

Equity markets have continued to slide over the past week. As of Thursday, 26 March, the MSCI China Index had declined by 1.66 per cent, while the Shanghai Composite fell by 1.72 per cent. The Shenzhen Component and ChiNext indices also posted week-on-week losses of 1.87 per cent and 2.37 per cent, respectively. Mid‑cap stocks marginally outperformed both small‑ and large‑caps, although declines were broad‑based across market segments. Value sectors continued to outperform growth by a narrow margin, reflecting a more cautious and defensive market stance. In the near term, market sentiment remains constrained by external geopolitical uncertainties and rising input costs, which continue to place pressure on manufacturing profit margins. Nevertheless, at the macro level, there has been no material shift in the underlying economic trajectory. The broader narrative of stabilisation and gradual improvement in A‑share fundamentals remains intact. Ongoing volatility and valuation adjustments may therefore present selective opportunities for medium‑term portfolio reallocation as policy visibility improves and cyclical indicators continue to recover.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.

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