China factories recover slowly from coronavirus but export orders keep shrinking
- Official manufacturing purchasing managers’ index dropped to 50.6 in May from 50.8 in April
- Non-manufacturing purchasing managers’ index rose to 53.6 in May from 53.2 in April
China’s factory activity fell back slightly in May, highlighting the challenges it faces while the recovery from coronavirus lockdown is continuing, according to new data released on Sunday.
Export orders for Chinese manufacturers kept shrinking and the data suggests factory jobs may also continue to fall.
While it fell below the median reading in a Bloomberg survey, the May figure was still above 50, indicating an expansion in activity – the further the index is above 50, the faster the expansion.
Total new orders continued to expand, with the index rising to 50.9 in May, up 0.7 percentage points from the previous month.
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What is the purchasing managers' index (PMI)?
But the improvement was due almost entirely to domestic demand, with new export orders continuing to decline sharply.
May’s export orders stood at 35.3, up slightly from 33.5 in April but still indicating shrinking foreign demand.
The manufacturing employment index was at 49.4, down from 50.2, while non-manufacturing employment stood at 48.5 last month compared with 48.6 the previous month, showing a broad-based employment contraction and highlighting the challenge facing the government, which has put job creation at the top of its agenda for the year.
Zhang Liqun, a researcher at the Development Research Centre, said in a statement that insufficient demand was emerging as a major problem.
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As such, the well-being of China’s manufacturing sector will be decided largely by whether China “can achieve quick results in boosting investment and expanding consumption”, Zhang noted.
Zhao Qinghe, an official with the statistics agency’s service survey centre, said in a statement that the recovery in manufacturing sector was mainly driven by items such food and beverages, petroleum processing and automobiles.
As many overseas markets are still struggling to contain the spread of Covid-19 , China has to rely more on its own markets to support its vast production apparatus.
The Chinese government decided not to set a growth target for 2020, the first time it had done so since 2002.
China’s non-manufacturing PMI, which measures sentiment in the services and construction sectors, increased to 53.6 in May from 53.2 in April.
Construction industry business activity accelerated further in May, with the index rising to 60.8 from 59.7 in April, thanks to roll out of state-led infrastructure investment projects.
At the same time, more than half of service sector firms reported insufficient demand in May. Activities related to tourism, culture, sports and entertainment have not yet fully recovered, and the relevant industry indices remain low, the NBS said.
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The NBS PMI surveys lean towards large, state-owned firms, which have recovered more quickly from the coronavirus lockdown earlier in the year than have smaller firms.
The Caixin/Markit manufacturing and service sector PMI surveys, which gauge sentiment in smaller firms, will be released later this week.
The Chinese economy contracted by 6.8 per cent in the first quarter from a year earlier, with expectations that it will grow modestly, at best, in the second quarter.
While domestic production has rebounded from its low point in February, the recovery is being weighed down by the impact on exports from the Covid-19 outbreak in Europe and the United States.
In addition, domestic demand remains weak, with consumers concerned about the outlook for their jobs and their incomes. Retail sales also fell by a larger-than-expected 7.5 per cent in April from a year earlier.
01:07
What is the purchasing managers' index (PMI)?
