China’s factory activity picked up pace last month, official data showed yesterday, although analysts warned that weak global demand and a potential COVID-19 resurgence are weighing on its longer-term recovery.
The world’s second-largest economy has been whirring back to life after the virus and sweeping lockdowns prompted a near-halt in activity at the start of the year.
However, economists have warned that momentum might weaken in the second half of the year as key markets struggle to recover from the crisis and as orders for medical supplies abroad — which have boosted exports — peak and fall.
Photo: AP
China’s purchasing managers’ index (PMI), a key gauge of activity in factories, came in at 50.9 points last month, better than the 50.5 forecast in a Bloomberg News poll of analysts and up 0.3 points from May.
Anything above 50 is considered to show expansion.
The non-manufacturing PMI came in at 54.4 points from 53.6, according to the Chinese National Bureau of Statistics.
The readings would be welcomed as the economy slowly emerges from the disease, having shrunk in the first quarter for the first time in decades.
Bureau senior statistician Zhao Qinghe (趙清河) said that the surprise uptick came as “supply and demand continued to pick up” last month, while imports and exports are also looking better as major global markets restart their economies.
However, he warned that there were still “uncertainties,” with the import and export indices below the 50 mark and a larger number of small enterprises reporting a lack of orders.
United Overseas Bank Ltd (大華銀行) economist Chen Ho Woei (陳浩偉) told reporters that the poorer performance of small businesses suggests China’s government needs to continue providing targeted support.
While there was a relatively good recovery in the second quarter, Nomura Holdings Inc chief China economist Lu Ting (陸挺) flagged “strong headwinds ahead and heightened uncertainty.”
“The momentum could lose some steam in coming months,” he said.
Lu told reporters that the manufacturing PMI improvement might have been driven by an improvement in new export orders, but they remained in contraction territory, adding that the fall in the employment sub-index also did not bode well.
“The rebound in new COVID-19 cases in Beijing and some surrounding cities dealt a blow to the service sector,” he said, adding that recent data suggested no clear recovery in tourism in the past few months.
Martin Rasmussen of Capital Economics added that overseas shipments “look ripe for a pullback, despite the improvement in export orders,” with demand for virus-related products, such as masks, that were needed in the global outbreak likely to weaken.
“But the continued rapid issuance of government bonds means that infrastructure spending should remain strong and help keep the recovery on track,” he said.
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