(Yicai) Jan. 27 -- Activity in China's manufacturing sector contracted last month for the first time since September, as workers returned to their hometowns for the annual Chinese New Year holiday, while business confidence rose to a 10-month high.

The manufacturing purchasing managers' index came in at 49.1 this month, down on December’s 50.1, November’s 50.3, and October’s 50.1, according to data released by the National Bureau of Statistics today. A reading below 50 indicates contraction.

But confidence rose to 55.3 percent, up from 53.3 percent in December, which was the lowest level in three months, meaning manufacturers remain optimistic about the economic recovery, which will be supported by the resumption of production following the eight-day lunar new year break and ongoing policy measures.

Since last September, the government has taken steps to support the economy with the biggest stimulus package since the Covid-19 pandemic and it has pledged to implement a moderately loose monetary policy this year, along with a more proactive fiscal policy, including a rare increase in the fiscal deficit ratio.

This month’s PMI contraction reflects an unstable recovery, said Zhang Liqun, a special analyst at the China Federation of Logistics & Purchasing. The rebound in prices indicates that earlier policies aimed at improving supply-demand dynamics are starting to show results, while the drop in orders suggests persistent weakness in demand, Zhang noted.

Purchase prices rose to 49.5 percent from 48.2 percent, while ex-factory prices ended a two-month decline after climbing to 47.4 percent from 46.7 percent.

New orders fell to 49.2 percent from 51 percent, while new export orders dropped to 46.4 percent from 48.3 percent, mainly due to a slowdown in exports of consumer goods and electronic products with the finish of the year-end holiday season in Europe and the United States.

Efforts should be entirely focused on advancing counter-cyclical macroeconomic adjustments -- policies that counteract the effects of economic cycles -- particularly by quickly lifting government investment in public goods to drive corporate orders, guide the recovery in demand, and sustain economic growth, according to Zhang.

The decline in new orders was mainly influenced by seasonal factors, particularly the imminent Chinese New Year holiday, according to Wen Tao, an expert at the China Logistics Information Center. 

As businesses get back to work after the break, the ongoing implementation of policies and the gradual execution of tasks outlined in the Central Economic Work Conference are expected to help steady and boost manufacturing activity, We added.

The non-manufacturing PMI stood at 50.2 this month, down from 52.2 last month, the NBS data also showed. Business activity in the construction industry fell to 49.3 percent from 53.2 percent, while that in the service sector dropped to 50.3 from 52 percent.

The composite PMI output index, which includes the manufacturing and non-manufacturing sectors, came in at 50.1, down from 52.2 percent.

Editor: Martin Kadiev