BEIJING, (Reuters) – China’s factory activity grew in February, buoyed in part by growing new orders. However, employment remained in decline and inflationary pressures increased.

Caixin/Markit Manufacturing PMI rose to 50.4 in February from 49.1 two years ago. According to a Reuters poll, economists had predicted that the index would rise to 49.3.

On a monthly basis, the 50-mark separates contraction from growth.

This reading was consistent with the PMI official release earlier today, which indicated that the index stood at 50.2 last months, just a little higher than the January 50.1.

Sub-index 51.5 for new orders stood, which is the highest reading since June 2021, and significantly up from 48.5 the month before, because factories reported higher customer demand.

Although factory output increased to meet new demand by 50.1, it was still lower than 48.4 in the prior month. Survey results showed that the consumer goods industry was driving the improvement, while output at investment and intermediate goods producers fell.

China’s economy was strong last year, rebounding in 2020 from a slump caused by the pandemic. However, momentum began to slow in summer due to debt issues in China’s property market, and strict antivirus measures which impacted consumer spending and confidence.

All eyes will be on March 5, when the top legislative body meets to discuss economic goals and possible additional stimulus.

Even with some improvement in Caixin PMI, the factories continued to decrease their workforce for the seventh consecutive month. This is a reminder of long-standing problems facing the manufacturing industry from supply chain issues and sporadic COVID-19 epidemics.

“From January to February several areas across China, such as Jiangsu Province and Guangxi Zihuang autonomous regions, were affected by flare-ups COVID-19. The Epidemic Control Measures were Enhanced, Which Restricted Transportation and Sales of Manufactured Goods,” Wang Zhe (Senior Economist, Caixin Insight Grup), stated in an accompanying statement.

“Policymakers must enhance support policies in order to stimulate employment, strengthen structure support for small and middle-sized enterprises, and reduce the tax burdens for corporations and their fundraising costs.”

With input prices increasing at an unprecedented rate over the past four months, inflationary pressures increased. As output prices rose again for the second consecutive month, factories would be able pass some costs on to their customers.

In eight months, the confidence level of manufacturers towards the future year was at its highest.