China’s manufacturing engine bounced back strongly in March, recovering from a miserable February, when the country was effectively shut down due to coronavirus.
The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners in the world’s second largest economy – was 52 in March, according to data released by the National Bureau of Statistics (NBS) on Tuesday. This was up from an all-time low of 35.7 in February
A reading of 50 shows growth in the manufacturing economy, while the further below 50, the deeper the contraction. March’s reading was much higher than the median prediction of a poll of analysts conducted by Bloomberg, which expected 44.8.
China’s non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – also recovered to 52.3 from 29.6 in February, another record low. This reading was well above the Bloomberg analysts’ forecast of 42.0.
China was the first major economy to shut down in an effort to contain the coronavirus pandemic, which is now ripping through the rest of the world. Its recovery is being watched closely by policymakers around the globe in the hope that a V-shaped bounce-back may be possible.
In a statement accompanying the data, an NBS spokesman attributed the positive PMI to the successful efforts to reopen large parts of the Chinese economy.
“As of March 25, the resumption rate of large and medium-sized enterprises was 96.6 per cent, an increase of 17.7 per cent from the survey results on February 25,” an NBS statement said. “We cannot say China's economy has fully returned to normal levels based on a single month. We need to continue observing changes in the following months.”
However, with the global economy now in a tailspin, the recovery may be relatively short-lived. Most analysts are expecting a prolonged slump worldwide.
And while China’s collapse over the first two months of the year was a supply-side catastrophe, it is now braced for a demand-side pummelling, as its export markets shut their borders and lock down their people, meaning the demand for Chinese goods will fall away.
However, the new orders element of the manufacturing PMI was 52 in March, suggesting producers are positive about the month ahead domestically. But foreign trade is a different matter: the new export orders element of the manufacturing PMI remained negative at 46.4.
Exports account for about 20 per cent of China’s gross domestic product. Having taken weeks to reopen factories, manufacturers are now reporting lower export orders from international clients.
The trouble facing China’s biggest firms was illustrated in new data released on Friday, which showed industrial profits plummeted 38.3 per cent in the first two months of 2020, the biggest losses on record.
But given that the official PMI is a heavily-weighted towards larger, state-owned firms, it suggests that these giants may have been the first to recover, albeit perhaps temporarily.
A fall in domestic consumption is also anticipated, despite the positive survey results. The bleak picture in the first two months of the year was largely due to people being unable to spend their money, attend events, go shopping or watch a movie at the cinema.
A total of 495 cinemas, or 4.4 per cent of China’s total, had opened by last Tuesday, government data showed, but they attracted just two people per cinema per day. Days later, they were ordered to shut again as the government looked to contain a potential second wave of coronavirus infections in China.
Malls in China are also reportedly empty, despite the government’s attempts to reopen them, suggesting that the psychological scars of the pandemic remain strong, even as the official number of new cases continues to fall.
Mass bankruptcies are anticipated in China following the shutdown, which is likely to lead to a spike in unemployment that will also drag on consumption. The employment metric of the PMI was 50.9 for manufacturing and 47.7 for non-manufacturing, suggesting manufacturers are more confident about adding jobs than service sector firms.
Indeed, in what was the first real glimpse of the depth of employment issues, the surveyed jobless rate jumped from 5.2 per cent to 6.2 per cent two weeks ago, the equivalent of 5 million people losing their jobs.
That survey only covered contracted workers and did not include migrant workers, meaning the figure is likely to have been much higher across the entire workforce, as a significant portion of China’s migrant labour force was trapped in their home provinces during the lockdown.
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