China’s factory activity growth at 1-year high, official survey shows, as stimulus measures kick in

China’s manufacturing activity expanded at its fastest pace in one year in March, signaling Beijing’s stimulus measures were helping prop up an economic recovery, while looming U.S. tariffs threaten to thwart growth.

The official purchasing managers’ index came in at 50.5 in March, according to the National Bureau of Statistics data released Monday, marking the fastest expansion since March last year and in line with Reuters poll estimates.

The PMI figure sprang to above the 50-level threshold — which determines expansion from contraction — in February, coming in at 50.2, from a contraction of 49.1 in January, as production resumed after the Lunar New Year holiday.

The sub-index for production edged higher to 52.6 for March while that of new orders climbed to 51.8, pointing to improvement in manufacturing supply and demand.

The employment reading declined from the previous month to 48.2.

The PMI readings suggested “infrastructure spending is ramping up again and that exports have so far remained resilient in the face of U.S. tariffs,” Julian Evans-Pritchard, head of China economics at Capital Economics said in a note.

Still, the economy is on course for a slower growth in the first quarter, compared with the fourth quarter last year, he said, citing weakness in services sector and “unflattering base effects.”

The statistics bureau’s PMI for non-manufacturing activity, including services and construction, rose to 50.8, the highest level in three months.

The employment sub-index of the non-manufacturing PMI dropped to 45.8, with declines seen in both services and construction sectors, indicating soft labor market across all surveys.

Chinese mainland’s benchmark CSI 300 index was down 0.12%, while the offshore yuan strengthened 0.16% to trade at 7.2570 against the greenback.

Chinese policymakers have pledged to step up monetary and fiscal stimulus push to achieve a growth target of “around 5%” this year and cushion the impact of an escalating trade war with the U.S.

The steps so far have included several rounds of expansion of a consumer goods trade-in scheme to boost domestic consumption and accelerated issuance of government debt to ease housing woes and deflationary pressures.

Beijing has raised its budget deficit to around 4% of its GDP for 2025, up from last year’s 3%, a rare increase as the government strives to counter impacts from tariffs.

“The budget does allow for fiscal support to be stepped up further over the coming months,” said Evans-Pritchard, though “U.S. tariffs, which look set to escalate this week, will start to weigh on exports before long.”

The latest PMI figure added to a mixed bag of economic data at the start of the year that showed industrial output and fixed asset investment grew more than expected, while consumer inflation fell into negative territory for the first time in a year.

Exports, a lone bright spot in the faltering economy, have lost momentum in the first two months of the year, growing at their slowest rate since April last year, according to LSEG data, as exporters’ front-loading activity to get ahead of new tariffs started to taper off.

U.S. President Donald Trump has levied 20% additional tariffs on Chinese goods in his latest term over the country’s alleged role in illicit fentanyl trade, drawing Beijing’s retaliation with up to 15% tariffs on select U.S. goods, primarily energy and agricultural goods.

Trump is set to unveil his “reciprocal” tariffs designed to address trade imbalances on April 2, potentially hitting Chinese goods with additional duties.

Last week, the U.S. president said he may reduce tariffs on China in exchange for Beijing’s support for a deal that would see TikTok’s Chinese parent company ByteDance sell the short video app to an American company.

The Caixin/S&P Global manufacturing PMI for March, due on Tuesday, is forecast to show manufacturing activity pick up to 51.1 from 50.8 in the prior month.