Chinese factory activity slows in face of global pandemic

BEIJING, China – Chinese factory activity continued to expand in April, data showed on Thursday, April 30, but analysts warned that the outlook remained clouded by battered overseas demand as the rest of the world struggles to overcome the coronavirus pandemic.

While the country ramps up economic production as daily life slowly gets back to normal following weeks of strict lockdown measures, its crucial markets in the United States and Europe remain virtually shut down.

The closely watched manufacturing Purchasing Managers’ Index (PMI) came in at 50.8, just above the 50 mark that separates expansion and contraction, but down from the previous month and slightly short of expectations.

Still it is a significant improvement on the record low 35.7 posted in February, when major cities were forced to shut down to prevent the disease’s spread.

Zhao Qinghe, senior statistician at the National Bureau of Statistics (NBS) which released the data, said demand was recovering at a slower pace than production, in industries including textiles and chemical raw materials.

“The spread of the pandemic is accelerating overseas, and global economic activity has contracted sharply,” he said.

The NBS data also found that nearly 60% of companies surveyed reported “insufficient orders” and Zhao said some manufacturing companies reported a sharp decrease in newly signed export orders, while some orders that had already started production had been canceled.

“China’s foreign trade faces greater challenges,” he said. 

Non-manufacturing PMI came in at 53.2 – up on last month and above analyst predictions.

Zhao said there had been a “significant rebound” in the catering industry but added that “the resumption of work and production in some industries is still lagging behind.”

“Industries such as accommodation, culture, sports, entertainment, and resident services have had a larger impact from the epidemic,” he said.

Many gyms, cultural centers, and cinemas have remained closed throughout April.

ING chief economist for Greater China Iris Pang told Agence France-Presse that the latest PMI figures indicate China’s trend towards recovery still faced uncertainty.

“This weakness may last a long time as the unemployment rate in the western side of the world has been high,” she said. “This will in turn hurt China’s domestic demand, and therefore foreign companies’ profits.”

Analysts at Nomura said growing domestic demand in China could be offset by declining exports, which will keep the PMI figure hovering near the 50 mark.

The expectation of “a quick recovery in China is fading,” they warned.

China’s economy shrunk 6.8% in the 1st quarter – the first contraction in decades. 

And UBS Securities said this week that 80 million jobs could have already been lost, with more than 10 million more to evaporate in export sectors.

Martin Rasmussen of Capital Economics said that April’s figures were boosted by a pick-up in construction, but that the months ahead will be “underwhelming.”

“Labor market strains will hold back the recovery in services and weak foreign demand will continue to weigh on manufacturing activity for some time,” he said. – Rappler.com