China’s Exporters Are Feeling Gloomy Even as Economy Restarts

Date: Friday, May 1, 2020
Source: The Wall Street Journal

Factories are resuming production, but pandemic-triggered recessions around the world threaten to crater export demand

China’s factories are resuming production, but pandemic-triggered recessions around the world have manufacturers pessimistic about export demand, figures published Thursday show.

China’s official index of manufacturing purchasing managers slipped to 50.8 in April, the National Bureau of Statistics said. That is down from 52.0 in March, when it bounced back strongly from February’s dismal 35.7.

The index, a measure of confidence among manufacturers, remained positive—above 50 indicates expansion; below 50, contraction—but just barely. While factories increased output, the figure was dragged down by pessimism among companies involved in exporting and importing.

Smaller, export-oriented Chinese companies already see orders slackening, according to a separate, private survey.

Other government figures out Thursday showed China’s domestic economy getting back on its feet as the worst of the coronavirus threat dissipates, with construction and services indicators improving from March. Trends for employment, however, remained worrisome.

As the first official data for each month, China’s purchasing manager readings set the tone for how analysts gauge activity in the world’s second-biggest economy. Purchasing by manufacturers is a leading indicator of business activity because factories buy supplies in anticipation of demand.

This time the readings also give a fresh indication of the severity of the economic fallout for China, the first country affected by the coronavirus.

For China, April was a month when authorities sought to get the economy restarted after a near-absence of business and consumer activity between late January and the end of the first quarter. For other countries it was a month of lockdown—creating a falloff in global demand that threatens China’s restart.

Both China and the U.S. earlier posted severe declines in first-quarter gross domestic product: down from a year early by 6.8% and 4.8%, respectively, illustrating how pandemic-related disruption quickly plunged the world into recession.

China’s latest figures offer hope its domestic-oriented businesses are getting over the initial economic shock, likely helped by government-funded activities including construction. Beijing’s efforts to boost business confidence include infrastructure spending, easier credit and lower taxes, along with programs meant to minimize business and personal defaults as well as joblessness.

While the shutdown of industrial, travel, entertainment and educational enterprises that began in late January is largely over, activity remains curtailed in ways likely to cause hardship for small and midsize businesses. And even if domestic conditions have stabilized, China’s economy relies greatly on exports now in grave doubt from a global downturn that stands to get worse.

The World Trade Organization forecasts the Covid-19 crisis will tug global trade lower by 13% to 32% this year—bad news for China, the globe’s No. 1 trading economy.

Given that major shutdowns in the U.S., for instance, didn’t hit until the final three weeks of the first quarter, second-quarter GDP is likely to show a deeper decline.

A subindex of the Chinese government’s purchasing managers survey that measures new export orders, fell to 33.5 in April from 46.4 in March, deep into pessimistic territory. Numbers on import plans likewise were weak.

They were offset by a subindex measuring production, which remained positive at 53.7 in April.

Private business turned pessimistic in April, according to a separate index published by Caixin Media Co. and research firm Markit that tilts toward smaller manufacturers. It dropped to 49.4 in April from a mildly positive 50.1 reading for March.

Though Chinese businesses have gotten back to work, a sharp fall in export orders “seriously hindered China’s economic recovery,” according to Zhong Zhengsheng, an economist at CEBM Group, quoted in the survey’s statement. Optimism about the 12-month outlook slid to a four-month low, the survey said.

In a sign of how much exports matter to China’s business outlook, the factory purchasing index was stuck below 50 through most of 2019 as trade tensions with the U.S. festered, then recovered late in the year when the two sides signaled a truce.

Chris Leung, a DBS economist, says that while only 18% of China’s GDP last year was attributed to net exports, they matter substantially more in richer parts of the country, including Guangdong province and the region around Shanghai. “The coastal region will be hard hit by the collapse of external demand,” he said in a presentation Thursday.

China’s relatively positive numbers on corporate purchasing plans contrast with a recent J.P. Morgan Global PMI Composite Output Index, which flashed signs of “severe downturn” in March export orders among manufacturers and services providers world-wide.

The American Chamber of Commerce in China this week said 42% of respondents to a survey of its members reported they are again operating normally, while 67% said they expect business growth to stall this year.


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