Small boom in China factory activity ahead of tariff gloom

China's factory activity expanded at the fastest pace in a year in March, welcome news for the world's second-largest economy before expected tariffs by the United States that could further strain trade ties.

The official manufacturing purchasing managers' index (PMI) was 50.5, versus 50.2 in February, the National Bureau of Statistics said Monday. The median forecast of economists surveyed by Bloomberg was 50.4. Any number above 50 points to expansion.The non-manufacturing measure of activity in the construction and services sectors rose to 50.8 from 50.4 last month. That compares with a forecast of 50.6. The PMI figures offer a snapshot of China's economic health just before the Trump administration is expected to press ahead with reciprocal tariffs.

China has warned Washington that it will retaliate if the US goes ahead with the levies. President Donald Trump has already imposed tariffs totaling 20% on Chinese shipments since his second term started in January. The US is also set to complete a review this week of Beijing's compliance with the phase-one trade deal struck during Trump's first term. China reported data last week that showed profits at industrial firms contracted at the start of the year, flashing a worrying sign for the economy.


Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group, described the March PMI data as "a mixed bag." "Factories are destocking at cheaper prices while they cut the amount of imports and raw material inventories," he said. "We expect the momentum to slow a bit in the second quarter and policy supports are needed."

China's policymakers will lower the amount of funds banks must hold in reserve "without hesitation," if the tariff shock is big, he added. The onshore yuan rose 0.16% to 7.2516 versus the dollar.