China Factory Activity Rebounds, Geopolitical Risks Cloud Outlook

The official manufacturing PMI increased from 49.0 in February to 50.4, exceeding expectations of 50.0. The non-manufacturing PMI also expanded to 50.1 from 49.5, and the composite PMI climbed to 50.5 from 49.5, indicating broad economic improvement.

This rebound was driven by a recovery in demand, post-Lunar New Year normalization, government policy measures, and resilient external demand, particularly in electronics and industrial exports. However, input costs surged, with the raw materials price index jumping to 63.9, signaling renewed inflation pressure and potential margin compression for manufacturers.

The Middle East conflict adds significant downside risk, threatening energy markets, global shipping routes, and China's export flows, as the region accounts for approximately 20% of China's vehicle exports. The sustainability of this recovery depends heavily on stable external conditions, including energy prices and global trade.