Zheshang: February PMI shows large enterprises returning to expansion, focusing on stable growth in industry.

February Supply-side Focus on Expansion Range The production index in February was 52.5%, up 2.7 percentage points from the previous month, indicating that the slowdown in production activities in January was a temporary disturbance. With the resumption of production in the manufacturing industry after the Spring Festival, procurement activities also increased significantly, with the procurement volume index in February at 52.1%, up 2.9 percentage points from the previous month. Looking at industries, all four major industries saw good increases in production activities, showing a certain universality and diffusion of production recovery. The production index for the equipment manufacturing industry in February was above 54%, an increase of nearly 2 percentage points from the previous month; the production index for the high-tech manufacturing industry was 53%, up 3 percentage points from the previous month; the production index for high-energy-consuming industries rose to over 51%, an increase of more than 4 percentage points from the previous month; the production index for consumer goods manufacturing increased by 1 percentage point to over 51% from the previous month, showing stable growth in consumer goods production. We continue to emphasize that by 2025, industrial stable growth may focus more on the equipment manufacturing industry, combined with the direction of new industrialization development. Large enterprises may be the core carriers of efforts to maintain industrial stability. According to the industry classification criteria of the National Bureau of Statistics, the equipment manufacturing industry includes eight major industries: metal products, general equipment manufacturing, special equipment manufacturing, automobile manufacturing, railway, shipbuilding, aerospace and other transportation equipment manufacturing, electrical machinery and equipment manufacturing, computer, communication and other electronic equipment manufacturing, and instrumentation manufacturing. The Ministry of Industry and Information Technology has stated that efforts will be made to promote stable growth in the equipment manufacturing industry, plan a new round of policies to stabilize growth in the equipment manufacturing industry, and promote the introduction of incremental measures. As a result, we believe that there is a high probability that industrial production will have a strong start in the first quarter. It can be seen that the trend of high-frequency data is basically consistent with the PMI in February, but the difference in slope may be more focused on the significant contribution of large enterprises to production expansion. Large enterprises quickly recovered after the Spring Festival, with the production index of large enterprises increasing by nearly 5 percentage points to 56.2% from the previous month in February, making them the core support force for the overall improvement in manufacturing in February. We note that since 2023, the production index of large enterprises has continuously operated in the expansion range, especially in February 2025, the latest data reached a new high since April 2023, indicating that the support role of large enterprises in the macroeconomy is steadily strengthening. Small and medium-sized enterprises continued to fluctuate in February, with the production index of medium-sized enterprises increasing by nearly 3 percentage points to over 52% from the previous month, and the PMI production index of small enterprises decreasing by nearly 3 percentage points to around 44% from the previous month. With downstream enterprises gradually resuming production, electricity generation, coal consumption, and raw coal volume have continued to increase month-on-month after the Lantern Festival. According to statistics from the State Grid Coal Group, as of February 21st, the cumulative electricity generation of coal-fired power plants included in the statistics increased by 13.7% year-on-year this month, but decreased by 7.9% year-on-year. The coal consumption of coal-fired power plants increased by 11.3% year-on-year this month, but decreased by 6.1% year-on-year. Coal inventory in coal-fired power plants was 2.2 million tons higher than the same period last year, and the number of days of available inventory increased by 1.6 days compared to the same period last year. By observing data from the six major power generation groups (State Grid, China Southern Power Grid, Guangdong Power Grid, China Guodian Corporation, China Datang Corporation, State Power Investment Corporation), it can be seen that the daily coal consumption of power plants has gradually increased since February, with an average daily coal consumption of 782,500 tons on February 27th, which is significantly higher than the 639,700 tons on January 31st, possibly due to the gradual recovery of the power industry after the Spring Festival. Another similar piece of evidence is the month-on-month increase in daily coal consumption by power plants in the southern region, with key power plants in China experiencing a month-on-month increase in coal consumption since February. In addition, manufacturing resumed in an orderly manner after the Spring Festival. In the automotive industry, the operating rate of all-steel radial tires in February 2025 fluctuated to 54.44% (compared to a daily average of 47.30% in January 2025), while the operating rate of semi-steel radial tires slightly decreased to 66.52% (compared to a daily average of 65.31% in January 2025). In the chemical industry, maintenance plans for PTA plants were gradually released, leading to a corresponding narrowing of inventories. The operating rate and output of PTA slowed slightly compared to January, while the operating rate of polyester filament and downstream weaving machines in the Jiangsu-Zhejiang region also increased. After the Lantern Festival, downstream demand and the acceleration of weaving machines led to increased purchasing activity. Looking at the steel industry chain, the blast furnace operating rate in February (247 plants) shook up to 77.99%, indicating that demand for steel is still strong, with the recovery of demand for construction materials leading the way. Marginal improvement in total demand in February The new order index for manufacturing in February was 51.1%, up 1.9 percentage points from the previous month, returning to the expansion range after briefly falling below 50% the month before. Market demand in February showed a generally positive trend, with new order indices in the four major industries all showing significant increases and operating in the expansion range. With the resumption of production and investment under special bond programs, demand for equipment and facilities market has stabilized and grown. The new order index for the equipment manufacturing industry rose to over 51%, an increase of nearly 1 percentage point from the previous month; under policies to stimulate consumption such as the replacement of old equipment for new equipment and promote the development of new technologies such as artificial intelligence, demand for high-tech products and consumer goods is releasing well, with the new order indices for high-tech manufacturing and consumer goods manufacturing increasing by 2.1 and 2.3 percentage points from the previous month to over 51%; resumption of production and investment in basic raw materials market has also driven demand rebound, with the new order index for high energy-consuming industries increasing by 3.4 percentage points to close to 51%, reaching a new high since April 2023. We believe that the improvement in demand elasticity in February is influenced by both the seasonal factors of the Spring Festival and the initial signs of the bottoming out and recovery of the Chinese economy. Although order indices have all increased, the extent of improvement may be more affected by factors such as production preparation after the Spring Festival. More than 60% of surveyed enterprises in February still reported insufficient demand, indicating that there is still room for improvement in endogenous dynamics, and we recommend to focus on strengthening the role of macroeconomic fast variables (such as government public investment) in driving total demand. In terms of domestic demand, under comprehensive policy measures, the effect of large-scale consumption as a stimulus for replacing old with new has become more prominent. Data from the Ministry of Commerce shows that as ofAt 24:00 on February 19th, more than 26.71 million consumers applied for subsidies to purchase new mobile phones, tablets, smartwatches, and smart bracelets. More than 3.97 million consumers purchased old-for-new products in 12 major categories of household appliances, totaling more than 4.87 million units. Additionally, 647,000 electric bicycles were exchanged for new ones.In terms of external demand, in February, foreign demand also showed a slight recovery, with the new export orders index at 48.6%, up 2.2 percentage points from the previous month. We believe that Trump's trade memorandum "US Priority Trade Policy" released on January 21, 2025, which involves aspects of China such as the "phase one economic and trade agreement", 301 tariff avoidance, and most favored nation treatment (PNTR) agreement, may all lead to unfavorable outcomes. The price index continued to rise in February. On the one hand, the overall level of raw material purchasing prices in the manufacturing sector in February showed a slight increase, with the purchasing price index at 50.8%, up 1.3 percentage points from the previous month, returning to the expansion range after running below 50% for three consecutive months. Among them, the main raw material purchasing price index in industries such as food processing, chemical fibers and rubber and plastic products, and electrical machinery and equipment is above 55.0% in a high prosperity range. By industry category, the purchasing price index of the four major industries has increased from the previous month, with the purchasing price index of the equipment manufacturing industry and high-energy-consuming industries rising from below 50% to above 50%, showing a rebound in raw material prices in these industries; the consumer goods manufacturing industry's purchasing price index has risen to above 51%, indicating stable growth in raw materials for consumer goods manufacturing. On the other hand, driven by the rise in raw material prices and demand, the downward trend in manufacturing product prices has narrowed slightly, with the ex-factory price index at 48.5%, up 1.1 percentage points from the previous month. The marginal recovery of the emerging strategic industries in February The China Strategic Emerging Industries Purchasing Managers' Index (EPMI), jointly released by the China Academy of Science and Technology Development Strategy and Central Procurement Consulting, was 49% in February, up 3.4 percentage points from the previous month, ending a four-month downward trend. We believe that although the production capacity of strategic emerging industries has initially recovered after the Spring Festival, the momentum of demand recovery is relatively strong, with product orders and production volume rising to 50.7% and 46.1% respectively, but various indices have not yet reached their average levels of the past four years, mainly due to the impact of the Spring Festival holiday and the influence of the return-to-work rates, as many industries have not yet reached full production capacity. Specifically, the three industries of new materials, new energy, and new energy vehicles showed significant recovery, with the EPMI of the new energy industry rising by nearly 20 percentage points t...Complex, repairing risk preferences is not achieved overnight, China may usher in a bull market for stocks and bonds after facing challenges in Sino-US relations and domestic policy responses.This article is from the WeChat official account "Li Chaohong's macro research and asset allocation", authored by the Zhejiang merchant Li Chaohong macro team, and edited by GMTEight: Chen Qiuda.