China’s factory data mixed as Iran war clouds export outlook

By Joe Cash

BEIJING, March 4 (Reuters) – China’s large state-owned manufacturers struggled to turn a profit in February, hampered by weak domestic demand, while private-sector firms reported a marked recovery in exports, official and private activity surveys showed on Wednesday.

The official purchasing managers’ index (PMI) fell to 49.0 in February from 49.3 in January, a 4-month low, the National Bureau of Statistics’ poll showed. It remained below the 50-mark separating growth from contraction, and missed a median forecast of 49.1 in a Reuters poll.

In contrast, the RatingDog China General Manufacturing Purchasing Managers’ Index, compiled by S&P Global, rose to 52.1 in February from 50.3 previously. That topped analysts’ forecasts of 50.2, with new order volumes rising for the ninth successive month and at the quickest rate since December 2020.

“We think it makes sense to average across both PMIs to gauge conditions in industry. On this basis, the headline reading picked up from 49.8 to a five-month high of 50.5,” said Zichun Huang, China economist at Capital Economics.

The two surveys draw on different samples. The NBS focuses more on state-owned and large and medium-sized, domestic-facing enterprises, while the RatingDog poll profiles producers around Shanghai and in China’s southwestern provinces, analysts say.

The RatingDog PMI is also more sensitive to external demand.

IRAN CONFLICT POSES NEW RISK TO CHINA’S EXPORT-DRIVEN ECONOMY

While China’s export sector managed to navigate U.S. President Donald Trump’s tariff onslaught to post a record $1.2 trillion trade surplus in 2025, it now faces headwinds from the U.S.-Israeli military actions against Iran. The closure of the Strait of Hormuz, a critical Middle Eastern trade route, threatens to disrupt global supply chains dominated by China.

“If the war and closure of the Strait of Hormuz lasts for three or four months, or even longer, then it will be a nightmare for every country, including China,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

“We have already seen some cases of disruptions to container shipments and the charging of higher shipping premiums,” he added.

Strong exports have helped offset weak domestic demand since the end of the pandemic, but rising risks to global trade, including the possibility of new U.S. tariffs and supply chain disruptions, weigh heavily on China’s economic prospects.

The official PMI sub-index for new export orders fell to 45.0 in February from 47.8 a month earlier, a 10-month low, while the RatingDog poll showed new export orders rising at their fastest pace since September 2020.

“The war in the Middle East will likely weigh on the global economy, including China, over the course of March at least,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“If economic activity slows further in the coming months, I expect the government to boost investment moderately to mitigate pressure on the economy.

“The messages from the National People’s Congress will shed light on the policy outlook,” he said.

ECONOMISTS ANTICIPATE FRESH POLICY PUSH

Premier Li Qiang is expected to make fresh pledges to boost domestic demand and curb overcapacity when he delivers the government’s work report and next five-year plan during Thursday’s opening of parliament.

Analysts are looking for specific steps the government will take amid doubts about the effectiveness of recent policies such as targeted interest-rate cuts and possible further reductions in banks’ reserve requirements. These measures have delivered only limited gains since the end of the COVID-19 pandemic.

Policymakers can take some encouragement from the official non-manufacturing PMI, which includes services and construction, rising to 49.5 last month from 49.4 in January, while the RatingDog poll showed services activity growing at its fastest pace in 33 months.

Li is also expected to announce the official economic growth target for 2026.

Economists polled by Reuters in January forecast growth slowing to 4.5% this year and keeping that pace in 2027.

“The mixed bag of manufacturing PMI data suggests a similar trajectory to what we observed in 2025: resilient external demand continuing to drive growth,” said Lynn Song, chief economist for Greater China at ING.

“Domestic demand has been disappointingly soft,” Song said, adding that without fresh policy support it was likely to remain in the doldrums.

(Reporting by Joe Cash; Editing by Jacqueline Wong)