China small factory activity rises in May as coronavirus lockdowns end
- Caixin manufacturing purchasing managers’ index (PMI) rises to 50.7 in May from 49.4 in April
- Manufacturers record fastest growth in nine years but demand subdued due to continued decline in export orders
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.
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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.
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“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”.
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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.
Beijing has pledged a massive 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.