Line chart titled 'China factory work'

China’s factories are experiencing the fastest growth in a year as the risks of war are increasing

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Item 1 of 2 A worker works on the Nio electric vehicle production line at the JAC-NIO production plant in Hefei, Anhui province, China August 28, 2022. China Daily via REUTERS/File Photo

[1/2]A worker works on the Nio electric vehicle production line at the JAC-NIO production plant in Hefei, Anhui province, China August 28, 2022. China Daily via REUTERS / File Photo Purchase Licensing Rightsopens a new tab
  • March’s official PMI at 50.4, up from February’s 49.0
  • The headline chart shows the strongest growth in a year, helped by improved demand
  • The non-manufacturing PMI also rose to 50.1
  • War in the Middle East increases instability, creates risks for growth

BEIJING, March 31 (Reuters) – China’s factory output grew at its fastest annual pace in March, supported by improved demand, an official survey showed on Tuesday, a welcome relief for an economy grappling with global supply shortages and energy market volatility.

The strong reading eases pressure on policymakers, although its sustainability is questionable as rising energy prices driven by the Middle East war, and growing risks to growth, create fresh wind for producers who rely on imports and operate in small areas.

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“The outlook for Q2 is unclear at this stage, due to the negative impact of higher energy prices,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“The market is increasingly concerned about the risk of a slowdown in global growth and supply disruptions.”

The official purchasing managers’ index (PMI) rose to 50.4 from 49.0 in February, above the 50 mark and reaching its highest peak in 12 months, data released by the National Bureau of Statistics (NBS) showed. It beat analysts’ expectations for a reading of 50.1 in a Reuters poll.

Line chart titled ‘China factory work’

The manufacturing PMI was contracted for most of 2025 and the first two months of 2026.

China’s exports continued to boost growth in January and February after last year’s record $1.2 trillion trade surplus, boosted by solid global demand for electronics, especially semiconductors. The Ministry of Commerce said last week that the operation looks set to continue, despite the ongoing political crisis.

Yet the conflict in the Middle East raises concerns for policymakers.

The pressure was already evident in the latest survey. The price index for basic goods rose to 63.9 in March from 54.8 in February, driven by rising prices of bulk goods and brisk purchases by companies, NBS said.

Commodity prices also rose, albeit at a moderate pace, suggesting weak price dynamics.

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March PMI data may have been skewed by the Chinese New Year holiday, although there have been changes to the timing of the NBS survey which economists say remains incomplete. The festival fell in February, when factories were often closed longer than the official break, which lasted nine days this year.

Businesses accelerated their employment and productivity after the holiday and market activity improved, NBS statistician Huo Lihui said in a statement, adding that PMI readings improved for companies of various sizes.

The index for manufacturing and new orders rose to a high of 51 from a low of 50 last month, while for new foreign orders it improved to 49.1 from 45 in February.

The China Association of Automobile Manufacturers, an industry body, said earlier this month that the war could affect auto exports. The Middle East accounted for a fifth of China’s auto imports last year.

Increasing input costs would put pressure on wages and job security, which would affect already weak domestic demand.

China’s economic activity exceeded expectations for the first two months in part due to government support.

The non-manufacturing PMI, which includes services and construction, also rose to 50.1 from 49.5 in February, the NBS survey showed.

Tuesday’s PMI survey suggests China’s first-quarter GDP growth is likely to exceed 4.5%, within Beijing’s target range of 4.5%-5.0% this year, ANZ analysts said.

ANZ does not expect a rate cut in 2026 or 2027 while growth remains within the official target, saying instead policymakers could prioritize structural measures to cushion the impact of the oil shock.

China’s leaders have repeatedly vowed to shift the engine of growth to domestic consumption to reduce dependence on foreign demand. But the reforms will take time, and as the fallout from the war deepens, businesses are likely to suffer more in the near future.

“When the global situation is unstable, the dependence on China’s industrial chain increases, as was the case at the beginning of the epidemic,” said Dan Wang, director of China at Eurasia Group.

“However, exports and PMI may face risks in the second half of the year, as the Iranian issue may lead to a slowdown in the economy, especially the EU, which is China’s most important trading area.”

Reporting by Yukun Zhang and Ryan Woo; Edited by Shri Navaratnam

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