China’s Factory and Service Activities Improved in June, Shake Off 3 Months of Lockdown Contraction

The world second largest economy’s official manufacturing purchasing managers’ index (PMI) rose to 50.2 in June from 49.6 in May, the National Bureau of Statistics (NBS) said.

According to business surveys, China’s factory and service sectors snapped three months of activity decline in June, as authorities lifted COVID-curbs Shanghai, reviving output and consumer spending. 

Though activity in China is gaining momentum from lengthy Covid lockdowns in April and May, headwinds, including a still subdued property market, soft consumer spending and fear of any recurring waves of infections, persist. 

Indeed, the market sentiment improved with investors cheered the signs of economic recovery with China’s major stock indices rallying more than 1 percent and set for their biggest monthly rise in nearly two years. 

A sub-index for production stood at 52.8, the highest since March 2021, while new orders also returned to expansionary territory for the first time in four months, although growth remained frail. 

“Even though the manufacturing sector continued to recover this month, 49.3 percent of the companies reported orders were insufficient,” said Zhu Hong, senior statistician at NBS.

“Soft market demand is still the main problem facing the manufacturing industry,” he added.

“Some firms have faced a squeeze in their profit margins, and relatively huge operating difficulties,” the senior statistician cautioned. 

Shanghai lifted a city-wide strict lockdown on June 1, allowing resumption of production. However, rules on social- distancing such as dining-in were enforced throughout June. 

Analysts expect further improvement in economic conditions in the third quarter, although the official GDP target of around 5.5 percent for this year will be hard to achieve unless the government abandons the zero-Covid strategy. 

Some economists have cautioned that as long as China is sticking to its zero-Covid policy stance. This shall entail “economic growth will likely stay below its potential”.

The overall sentiment has improved with its recently announced shortened Covid-19 quarantine requirements for international travellers and removed an indication of travel through Covid-hit cities on a state-mandated mobile app for its citizens, paving way for greater exchanges of people and goods. 

Meanwhile, the official non-manufacturing PMI in June improved to 54.7 from 47.8 in May. The services industry staged an impressive rebound, the fastest in 13 months, with sectors that were hard hit by COVID curbs such as retail and road transport catching up with previously depressed demand. The index for construction activity also rose to 56.6 from 52.2. 

China’s official composite PMI, which includes both manufacturing and services activity, stood at 54.1, compared with 48.4 in May. 

China’s State Council recently announced a broad package of economic support measures to spur growth and rein in unemployment whilst and Premier Li Keqiang vowed to achieve reasonable economic growth in the second quarter. 

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