China's Factories Storm Ahead as Rest of Asia Stalls

CHINA - TOKYO. China's factory sector grew in February at the fastest pace in more than a decade, a standout in Asia where manufacturing growth stalled elsewhere, weighed down by slowing global demand, high inflation and interest rates, surveys showed on Wednesday.

Stronger signs that Chinese factories are rebounding after the removal of COVID curbs late last year could temper an expected downturn in the global economy this year, as the U.S. Federal Reserve stays on its higher for longer interest rate path.

China's official manufacturing purchasing managers' index (PMI) climbed to 52.6 last month against 50.1 in January while a private sector survey also showed activity rising for the first time in seven months.

India and Australia saw economic growth slow in the quarter to December, and South Korea's exports fell in February for a fifth straight month, highlighting the pain slowing global demand was inflicting on the region's manufacturers.

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The region's weaker data underscores the challenge Asian policymakers face in reining in inflation with higher interest rates, without choking off their economic recoveries already facing pressure from the global economic slowdown, analysts say.

"Overseas economies are showing stronger signs of slowdown" as the effect of fast-pitched interest rate hikes begin to appear in many countries, Bank of Japan (BOJ) board member Junko Nakagawa said on Wednesday.

China's recovering economy, the world's second largest, may not be enough to offset headwinds from weak chip demand and supply constraints for export-reliant economies such as Japan.

Japan's final au Jibun Bank PMI fell to 47.7 in February from January's 48.9, dropping at the fastest pace in more than two years, a survey showed on Wednesday.

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The weak outcome followed data showing a big drop in Japan's factory output in January on slumping production of cars and semiconductor equipment, casting doubt on the BOJ's view the economy was on course for a steady recovery.

Factory activity continued to shrink in Taiwan and Malaysia in February, and expanded at a slower pace than in January in the Philippines, surveys showed.

India's manufacturing activity expanded at the slowest pace in four months in February but remained relatively strong amid buoyant domestic demand, a private PMI survey showed.

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Separate data showed South Korea's exports fell 7.5% in February from a year earlier, marking the fifth straight month of declines, partly due to a plunge in semiconductor exports.

Policymakers hope China's re-opening from COVID-19 curbs, and resilience seen so far in U.S. and European economies, will underpin global growth this year.

The International Monetary Fund last month raised its 2023 global growth outlook slightly due to "surprisingly resilient" demand in the United States and Europe, an easing of energy costs and the reopening of China's economy after Beijing abandoned its strict COVID restrictions.