People hard at work in a factory in China. Photo: AFP

Factory activity in China picked up in March, official data showed, as the country’s economic recovery broadened after the Lunar New Year holiday.

The Purchasing Managers’ Index (PMI), a key gauge of manufacturing activity, grew more than expected to 51.9 – from 50.6 in February – according to the National Bureau of Statistics, with production accelerating after the holiday lull and major economies abroad also recovering from coronavirus slowdowns.

Non-manufacturing PMI made a significant rebound to 56.3, higher than the Bloomberg forecast of 52.0 and pointing to better performance in industries like construction and higher expectations for hard-hit service sectors.

“The main driver was stronger services activity as the disruption from January’s Covid-19 flare-up and resulting travel restrictions eased,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“But there was also a sharp turnaround in the construction index,” he added.

In manufacturing, NBS senior statistician Zhao Qinghe said that companies – including smaller ones – have done better, although there have been some delays in imported raw materials during the pandemic, leading to higher prices and longer delivery times.

But analysts believe the bounce is not sustainable.

Nomura chief China economist Lu Ting said a factor behind the “big rebound” was the repression of activity before and during the Lunar New Year holiday due to a rise in Covid-19 cases, leading to pent-up demand in March.

Pang added that Covid-19 resurgences in the US and Europe could derail new export orders, a key factor for the pick-up this month.

“From an export perspective, this is quite a fragile recovery,” she said.

The “room for catch-up growth will diminish” as service sector activity returns to trend as well, Evans-Pritchard said.

“And the current strength of exports is likely to unwind over the coming quarters as vaccinations allow a return to more normal global consumption patterns,” he said.