China’s economic recovery continues as manufacturing activity rises to highest level since January 2011
- Caixin/Markit manufacturing purchasing managers’ index (PMI) rose to 53.6 in October, the highest reading since January 2011
- On Saturday, the China’s official manufacturing PMI fell slightly to 51.4 in October from 51.5 in September, but continued to show strong activity
The Chinese manufacturing sector continued to show strong activity in October, indicating the nation’s robust rebound from the coronavirus pandemic continued in the first month of the fourth quarter.
The Caixin/Markit PMI focuses more on small, private firms unlike the official index whose respondents come mostly from larger, state-owned firms.
A PMI reading above 50 means that activity in the sector is expanding, a level below 50 that it is contracting. The further the reading is above or below 50, the faster the expansion or contraction.
“To sum up, recovery was the word in the current macro economy, with the domestic epidemic under control. Manufacturing supply and demand improved at the same time. Enterprises were very willing to increase inventories. Prices tended to be stable. Business operations improved, and entrepreneurs were confident,” said Wang Zhe, senior economist at Caixin Insight Group.
Within the Caixin/Markit PMI, the subindex of total new orders rose sharply into expansionary territory, hitting the highest since November 2010, with the output subindex remaining in expansionary territory for eight straight months.
But overseas demand recovered at a much slower rate than in September, although the measure for new export orders stayed in expansionary territory for the third month in a row.
The employment subindex stayed in expansionary territory for the second consecutive month, but only marginally above 50.0, indicating that the job market remained generally weak.
Looking forward, the gauge for future output expectations rose sharply to the highest level since August 2014, while nearly a third of manufacturers in the survey believed their businesses would improve in the next 12 months due to domestic coronavirus controls and a continuous economic recovery.
“But the twists and turns of overseas infections remained a headwind for exports,” added Wang. “The full recovery of employment depends on stronger and more-lasting business confidence. As the economic indicators for consumption, investment and industrial output for September were generally better than expected, it is highly likely that the economic recovery will continue for the next several months.
“But there are still many uncertainties outside of China, so policymakers need to be cautious about normalising post-coronavirus monetary and fiscal policies.”
What is the purchasing managers' index (PMI)?
Last week, the National Bureau of Statistics confirmed profits of China’s large industrial firms increased 10.1 per cent in September compared with a year earlier, though this was lower than the increase of 19.1 per cent in August.
“The Caixin manufacturing PMI points to an acceleration in manufacturing activity in October. Admittedly, the official survey released on Saturday pointed to a marginal slowdown. But taken together, they suggest that momentum in the manufacturing sector remained robust last month,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“Meanwhile, the official non-manufacturing PMI survey also released on Saturday suggests the rebound is broadening out as stronger services activity more than offset a slight loss of momentum in the construction sector.
“All told, the official composite PMI rose from 55.1 to 55.3, its highest reading since March 2012, and suggests that overall economic growth has continued to accelerate, even as our China Activity Proxy suggests that the economy had already returned to its pre-virus trend last quarter.
“In the near term, we think supportive fiscal policy and resilient foreign demand for Chinese-made goods will keep activity in industry and construction strong. Meanwhile, easing virus restrictions and improving labour market conditions should shore up consumer sentiment and household spending.”