Chinese factory activity saw surprise growth last month as businesses went back to work following a lengthy shutdown, but analysts said that the economy faces a challenging recovery as external demand has been devastated by the COVID-19 pandemic, while the World Bank said that growth could screech to a halt.
China is slowly returning to life after months of tough restrictions aimed at containing the virus, which put millions of people into virtual house arrest and brought economic activity to a near standstill.
The strict measures saw a closely watched gauge of manufacturing plunge to its lowest level on record in February, while industrial production contracted for the first time in 30 years as the country essentially shut up shop.
However, the purchasing managers’ index (PMI) yesterday came in well above expectations, hitting 52 for last month, the Chinese National Bureau of Statistics said.
That is well above the 35.7 from a month earlier and beat forecasts of 44.8 in a Bloomberg survey. Anything above 50 is considered expansion.
The bureau said that the number “reflects that over half of surveyed companies had improvements in their resumption of work and production from the month before.”
However, it added that “it does not represent that our country’s economic operations have returned to normal levels.”
Non-manufacturing PMI came in at 52.3, also well above analyst predictions.
Bureau senior statistician Zhao Qinghe (趙清河) said that despite the rebound in the manufacturing PMI “there remains relatively large pressure on enterprises’ production and operations.”
A larger proportion of firms face tight funding and insufficient market demand this month, with “new severe challenges” ahead as the virus sweeps the planet, dragging down trade growth, Zhao said.
Analysts expect the PMI to fall back into contraction territory next month.
“We shouldn’t read too much into this sharp rebound,” said Tommy Xie (謝東明), head of greater China research at OCBC Bank Ltd (華僑銀行).
“February was really a bad month for China... [Manufacturers] had a huge supply disruption because of shutdowns of factories and movement controls,” Xie said. “Any recovery from February ... was kind of a done deal.”
China is likely to see the effect of a “demand shock” in April, which could be a more significant indicator, he added, as global demand dwindles and factories abroad suspend operations.
New export orders remained below the 50 mark last month, alongside imports, reflecting that domestic demand recovered faster than external demand, said Iris Pang (彭藹嬈), chief economist for greater China at ING Bank NV.
“I think people have already forgotten ... that even if the coronavirus subsides in the US, there could be a high chance the technology war and trade war return,” said Pang, referring to lingering trade tensions between China and the US.
Analysts have also cautioned that other economic data for last month might be less rosy.
Nomura Holdings Inc analysts Lu Ting (陸挺), Wang Lisheng (王立升) and Wang Jing (王競) said in a note ahead of the PMI data release that they expect “deeply negative growth for almost all activity data in March,” given the relatively slow business resumption rate and slump in external demand.
Meanwhile, the World Bank yesterday cautioned that the global economic fallout could see China’s economic growth slump to 2.3 percent this year, from 6.1 percent last year.
The East Asia and Pacific region, excluding China, could see growth slow to 1.3 percent in the baseline or contract 2.8 percent in the more pessimistic scenario, as compared with 5.8 percent last year, the World Bank said in a report.
STAYING AHEAD: Fitch said that TSMC remains technologically ahead of others, but Samsung is building a new chip fab, while China is investing in its domestic industry As escalating US-China tensions and COVID-19-related production disruptions force US technology supply chains to transform, Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) US$12 billion chip fabrication plant in Arizona would be key to spurring greater US production of core semiconductor components, Fitch Ratings said. “We view the US-TSMC alliance as a first step in building a more autonomous US technology supply chain, given high barriers to entry, specifically related to the significant capital and design capability required for leading-edge semiconductor manufacturing,” Fitch said in a statement on Tuesday. “By working with TSMC, US chipmakers will not face the financial burden of incremental investment
DIVERSIFICATION: Although COVID-19 would push more companies to produce in emerging markets, DBS said that it was unlikely that firms would totally leave China Geopolitical tensions and supply disruptions are expected to accelerate the migration of manufacturing out of China, as concerns about the risk of production concentrated in one country increase, S&P Global Ratings said. Although its economic expansion might be weaker than previous levels due to the accelerated relocation of manufacturing, China’s economic growth would still be stronger than that of most other economies, the ratings agency said. “While absolute growth rates will moderate, we believe China’s economic performance will continue to be a key sovereign credit support,” S&P Global Ratings credit analyst Tan Kim Eng (陳錦榮) said in a statement on Thursday. “Its growth
Taiwan’s corporate landscape has changed significantly over the past 20 years, with Hon Hai Precision Industry Co (鴻海精密) replacing Formosa Plastics Corp (台塑) as the revenue leader, while Taiwan Semiconductor Manufacturing Co. (TSMC, 台積電) has emerged as the most profitable firm, a survey of Taiwan’s 50 largest companies published on Tuesday last week showed. The Chinese-language CommonWealth Magazine survey ranked Taiwan’s 50 largest companies based on their revenue last year, and compared them with the results of a similar survey it conducted in 2000. Only 33 companies on the original list remained in this year’s rankings, the survey found, following two
Luxury hotel Mandarin Oriental Taipei (文華東方酒店) yesterday announced that it would suspend guestroom operations and lay off related staffers from Monday, as regional border controls and travel restrictions are unlikely to be lifted anytime soon. The partial shutdown would not affect the five-star hotel’s restaurants, bars, spa, and conference and banquet facilities, which this month have almost recovered to pre-pandemic levels, it said. “Mandarin Oriental Taipei will suspend all guestroom services from June 1 due to the impact of the COVID-19 pandemic,” the hotel said after four months of maintaining normal operations proved unsustainable. The change necessitates downsizing and the hotel is handling