China small factory activity rises in May as coronavirus lockdowns end

02-Jun-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Production at smaller Chinese factories improved sharply in May, with a return to growth in overall activity after last month’s contraction, according to new data released on Monday.

The Caixin manufacturing purchasing managers’ index (PMI) rose to 50.8 in May its highest level since January from 49.4 in April, as the sector improved after the end of months of lockdowns because of the coronavirus pandemic. A figure below 50 indicates sector activity is contracting. The further below 50, the greater the contraction.

The official manufacturing PMI data which polls larger factories than the private Caixin/Markit survey released on Sunday showed sector growth easing slightly to 50.6 in May from 50.8 in April, while still positive.

The end of the lockdowns allowed factories to significantly expand production in May, with the rate of increase in output the fastest in nine years, according to the data compiled by IHS Markit.

However, overall new orders remained “subdued” due to a fall in export orders. As a result, the order backlog fell in May for the first time since 2016. Smaller manufacturing firms also continued to reduce staffing in May, the report said.

“Supply was generally stronger than demand in the manufacturing sector, as production continued its expansion amid a broader economic rebound while demand had yet to recover,” said Wang Zhe, senior economist at Caixin Insight Group.

Despite signs of recovery, analysts said there were few indications of a marked pick-up in the overall pace of economic growth.

“Looking ahead, stimulus measures should continue to boost infrastructure construction and credit growth in the coming months,” said Martin Rasmussen, China economist at Capital Economics.

“However, while the improvement in new export orders suggest that foreign demand may be bottoming out, it remains very weak and headline export growth is still likely to slow in the near-term.

“Meanwhile, the employment components still point to weak labour market conditions which will continue to weigh on the recovery in consumption and services.”

Ting Lu, chief China economist at Nomura, said the feeble state of new export orders implied “weaker momentum of recovery from the coronavirus”.

While China’s domestic economy is slowly improving from the lashing it took in the first quarter, the recovery has been weighed down by the pandemic’s impact on demand in Europe and the US.

China’s economy contracted by 6.8 per cent in the first quarter from a year earlier, prompting the government to drop its annual growth target for the first time since 2002.

Beijing has pledged a 4 trillion yuan (US$559 billion) stimulus package to revive the economy, including the issuance of special treasury bonds, lower lending rates, tax exemptions and lifting the fiscal deficit ratio to 3.6 per cent of gross domestic product.


Category: China

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