China’s manufacturing sector showed a widening split in February, with large state-owned factories struggling to regain momentum while private exporters reported a surge in overseas orders.
The February report has prompted concern that escalating conflict in the Middle East could sharply undermine export performance in March.
Data from the National Bureau of Statistics of China showed the official manufacturing purchasing managers’ index (PMI) slipping to 49.0 in February from 49.3 in January, a four-month low. The reading remained below the 50-point mark that separates expansion from contraction and came in slightly below the 49.1 median forecast in a Reuters poll. The sub-50 reading signals persistent weakness in large and medium-sized enterprises, many of which are state-owned and more dependent on domestic demand and infrastructure-linked activity.
Register for Tekedia Mini-MBA edition 19 (Feb 9 – May 2, 2026).
Register for Tekedia AI in Business Masterclass.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register for Tekedia AI Lab.
In contrast, the Caixin China General Manufacturing PMI, compiled by S&P Global, rose to 52.1 from 50.3, beating forecasts of 50.2. The private-sector survey showed new orders increasing for the ninth consecutive month, at the fastest pace since December 2020. Export orders in the Caixin survey expanded at their strongest rate since September 2020, highlighting the continued resilience of smaller, export-focused manufacturers.
The divergence underscores structural fault lines within China’s economy. The official survey skews toward large industrial firms serving domestic markets, including construction, heavy equipment, and property-related supply chains — sectors still grappling with subdued demand and overcapacity. The Caixin survey captures more nimble firms, often embedded in global supply chains and clustered around coastal manufacturing hubs.
Zichun Huang, a Chinese economist at Capital Economics, said averaging the two surveys provides a broader gauge of industrial conditions.
“On this basis, the headline reading picked up from 49.8 to a five-month high of 50.5,” Huang said. That composite view suggests stabilization at the margin, though the underlying composition of growth remains uneven and externally dependent.
Exports have been a critical support for the economy. In 2025, China posted a record $1.2 trillion trade surplus, navigating tariff pressure from U.S. President Donald Trump through supply chain adjustments and strong demand from emerging markets. But that cushion now faces mounting risks from escalating tensions in the Middle East.
The closure of the Strait of Hormuz following U.S.-Israeli military action against Iran has introduced a new layer of uncertainty. The waterway is a vital artery for global energy shipments and broader trade flows. Disruptions there have already led to higher shipping insurance premiums and delays in container traffic, according to analysts, threatening to raise logistics costs for Chinese exporters.
“If the war and closure of the Strait of Hormuz lasts for three or four months, or even longer, then it will be a nightmare for every country, including China,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
He noted early instances of shipment disruptions and higher freight charges.
While February’s private-sector export surge suggests orders were still flowing before the full impact of the Middle East escalation was felt, economists expect March data to tell a different story. Contracts negotiated earlier in the quarter may have buoyed February readings, but rising freight costs, longer transit times, and greater geopolitical uncertainty are likely to weigh on new orders and shipment volumes in the coming weeks.
The official PMI’s export sub-index already hints at softening demand. New export orders in that survey fell to 45.0 in February from 47.8, a 10-month low, signaling contraction. That drop may reflect early caution among larger manufacturers more exposed to commodity-intensive supply chains and shipping routes vulnerable to disruption.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, warned that the Middle East conflict would likely weigh on the global economy, including China, at least through March.
“If economic activity slows further in the coming months, I expect the government to boost investment moderately to mitigate pressure on the economy,” Zhang said, pointing to signals expected from the National People’s Congress.
The March performance of China’s export sector will be closely watched as a barometer of how quickly geopolitical tensions translate into real economic impact. China’s manufacturing model is deeply integrated into global supply chains, particularly in electronics, machinery, and intermediate goods. Any sustained disruption in maritime trade routes could not only delay outbound shipments but also impede the import of key components and energy supplies, compounding production bottlenecks.
Domestic demand remains a weak link. Household consumption has yet to fully recover from the property downturn and pandemic-era shocks, while investment in real estate remains subdued. Overcapacity in sectors such as steel, chemicals, and solar manufacturing continues to pressure margins. That makes the economy more reliant on external demand at a time when global trade conditions are deteriorating.
Premier Li Qiang is expected to outline new measures to boost domestic demand and address structural imbalances when he presents the government’s work report and the next five-year plan. Economists are looking for concrete fiscal initiatives after targeted interest rate cuts and potential reserve requirement reductions delivered only limited traction.
Lynn Song, chief economist for Greater China at ING, said the mixed PMI readings suggest a continuation of last year’s pattern.
“The mixed bag of manufacturing PMI data suggests a similar trajectory to what we observed in 2025: resilient external demand continuing to drive growth,” Song said.
However, he added that domestic demand has remained soft and is unlikely to rebound meaningfully without stronger policy support.
Economists polled by Reuters in January forecast growth slowing to 4.5% this year and holding at that pace in 2027. If the Middle East conflict persists and trade routes remain disrupted into the second quarter, those projections could come under downward pressure.
The February data present a snapshot of an economy still benefiting from external demand momentum built earlier in the year. But with geopolitical risks intensifying and shipping channels under strain, March is shaping up as a critical test of how China’s export engine can withstand another external shock.