China economy steadied further in June, as slow recovery from coronavirus continued
Date: Tuesday, June 30, 2020
Source: South China Morning Post
- The official manufacturing purchasing managers’ index (PMI) was 50.9 for June, with a reading above 50.0 signifying growth in factory output
- Non-manufacturing PMI was 54.4, with both surveys now reporting positive outlooks for four consecutive months
China’s economic activity steadied in June, with manufacturing and services both stabilising as the long way back from the coronavirus lockdowns continued.
The official manufacturing purchasing managers’ index (PMI) for June stood at 50.9, with a reading above 50.0 suggesting growth in factory output. This was better than analysts’ expectations, with the median result of a Bloomberg survey predicting 50.5. It was slightly better than May’s reading of 50.6.
The PMI is a sentiment gauge, conducted through a survey of factory owners and purchasing managers. It offers an early snapshot of the state of China’s economy during the month ahead, quizzing operators on issues like hiring, export orders and inventory.
The official non-manufacturing PMI, also released by the National Bureau of Statistics on Tuesday, was 54.4 for June, up from 53.6 in May and above analysts’ expectations of 53.6. It marked the fastest growth since November 2019. This survey takes the mood among services and construction sectors.
“The latest survey data suggest that economic growth accelerated in June thanks to a faster recovery in manufacturing and services, alongside continued strength in construction activity,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“The recovery should remain robust in the coming months as strong infrastructure spending offsets external weakness.”
The composite PMI, which combines both verticals, came in at 54.2 in June from 53.4 in May, signalling a broad if gradual steadying across the Chinese economy.
Both the manufacturing and non-manufacturing PMIs have now been in positive territory for four successive months, following the historic collapse in that saw the manufacturing survey come in at 35.7 and non-manufacturing at 29.6.
These slumps were an early indicator of the first quarterly economic contraction in China’s history, when the economy shrank by 6.8 per cent. Analysts have since been surprised by the relative speed of China’s recovery, with the International Monetary Fund last week revising upwards its forecasting, with the Washington-based institution is now expecting 1 per cent growth for 2020.
While there is strong anecdotal evidence that exports have dried up for many factories, the official foreign trade data has yet to show the anticipated massive export slump emanating from overseas shutdowns. Instead exports have limped along, returning to growth in April due to a boom in shipments of medical supplies, before contracting by 3.3 per cent in May.
Still, factory owners remain pessimistic on the prospects of their overseas trade. The export orders component of the manufacturing PMI remained negative at 42.6.
The employment metric was 49.1, showing that manufacturers did not expect to make significant numbers of new hires in the coming month. For non-manufacturing firms, the employment metric was 48.7.
While Beijing has not engaged in the huge volumes of stimulus seen in the United States and Europe in a bid to spend its way out of the pandemic-caused economic problems, it has in recent weeks loosened the purse strings.
It has mandated that 1 trillion yuan (US$141.3 billion) of special treasury bonds be funnelled straight to local city and county authorities, bypassing provincial governments.
Last week it clarified that the money would be pumped into the areas of infrastructure, rent subsidies, loan discounts for businesses, subsidies to help businesses stabilise employment, and basic living allowances for people in need.
A construction boom is also seen to be under way, with huge spikes in sales of construction equipment and raw materials in April, driving up investment in fixed assets and industrial production in May.
“The recovery is set to continue in the coming months. Admittedly, exports look ripe for a pullback despite the improvement in export orders last month: the exports of Covid-linked products (masks, medical products and work-from-home equipment) that held a hand under exports earlier in the global outbreak will probably weaken before long,” added Evans-Pritchard from Capital Economics.
“But the continued rapid issuance of government bonds means that infrastructure spending should remain strong and help keep the recovery on track.”
Nonetheless, huge risks remain for the Chinese economy. A wave of coronavirus infections in Beijing this month served a reminder of the fragile nature of the recovery, with authorities swiftly implementing new lockdown measures in and around Xinfadi market, where the outbreak was detected, as well as placing an unofficial embargo on salmon imports after fears that the virus had travelled from Europe.
Analysts have pointed to weak tourism and travel data over last week’s Dragon Boat Festival as a sign of the “lacklustre” state of some parts of the economy.
“National domestic visits and tourism revenues reached 48.8 million trips and 12.3 billion yuan, respectively, down 49.1 per cent and 68.8 per cent from levels during the three-day Dragon Boat Festival holiday last year,” wrote Nomura analysts in a note.
China’s relationship with the United States is also rapidly falling apart. While Chinese buyers have recently upped purchases of American goods in a bid to satisfy phase one trade deal criteria on imports, the troubled accord appears to be a sticking plaster holding the wider relationship together.
Washington moved to sanction Chinese officials over the weekend in retaliation for China’s impending imposition of national security legislation on Hong Kong, while Beijing moved to tighten visa rules for Americans in response.
Analysts have suggested that barring another severe outbreak of coronavirus in China, the superpower rivalry remains the biggest risk to the Chinese economy, with anti-China sentiment flaring in Washington and set to play a massive part in this year’s general election.