The Chinese economy is still struggling to recover.

China's manufacturing sector slowed slightly in March, falling slightly below expectations amid growing flexibility in the country's policy of opening up at the beginning of the year. However, the numbers for the service sector exceeded expectations and reached their highest level in nearly 12 years as the service sector continued to benefit from the pent-up demand and government measures to boost domestic spending.

China's manufacturing PMI index increased to 51.9 in March, higher than the estimated 51.5 but lower than the February reading of 52.6. This number indicates a slowdown after the manufacturing sector expanded rapidly in February.

On the other hand, the service sector's numbers were much better, with China's non-manufacturing PMI index at 58.2 in March significantly higher than the expected 54.3 and the previous reading of 56.3. This resulted in China's Composite PMI increasing to 57 in March, higher than the February reading of 56.4 and remaining at its highest level in 10 years.

The report on Friday echoed the latest comments from Premier Li Keqiang, who said that the economy improved in March after a relatively sluggish start to the year. However, data on Friday showed that the recovery of China's economy has shifted largely towards the services sector while the crucial manufacturing sector still lags behind. Premier Li said that the government will continue to carry out measures to boost local consumption and support economic growth, which is expected to increase demand for services in the near future.

However, the manufacturing sector still faces headwinds for China's export products due to high interest rates and inflation that have slowed global economic growth. Although local businesses received a boost from the relaxation of COVID-19 restrictions earlier this year, factories in the country still produce lower output than their total production capacity.

Meanwhile, the Chinese government is supporting local consumption and infrastructure spending to boost economic recovery this year. While the government expects GDP to grow by 5% in 2023, analysts are increasingly confident in China's recovery with Goldman Sachs forecasting a 6% growth in China's economy this year.