China factory activity slows amid global demand slump

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BEIJING • in expanded at a slower pace last month as the country attempts to get back on track after the coronavirus pandemic, official data showed yesterday, with the global economic making the sector’s recovery difficult.

China’s factories have stirred back to life after the lifting of strict lockdown measures imposed when the deadly virus surfaced in the central city of Wuhan. But the virus’ spread worldwide has dragged down key foreign markets – weighing heavily on Chinese exports.

The purchasing managers’ index (PMI), a key gauge of activity in China’s factories, was at 50.6 points last month, remaining above the 50-point mark separating growth from contraction each month.

But the figure was down slightly from 50.8 in April and 52 in March, according to China’s National Bureau of Statistics (NBS).

NBS senior statistician Zhao Qinghe pointed to weakness in China’s imports and exports, saying “the epidemic situation and economic situation globally remain severe and complex, and foreign market is still shrinking”.

Mr Zhao said indexes on new export orders and imports remained at relatively low levels.

Non-manufacturing PMI was at 53.6 last month, a slight rise from April, with the NBS flagging that the construction and service industries are showing signs of recovery.

Business activity in the cultural, sports and entertainment industries, however, remains low, with many entertainment venues still closed amid fears of a second wave of Covid-19 infections.

Nomura analysts said in a report last week that “with economic growth in the major economies of Europe and the Americas set to drop by around 15 per cent year on year in the second quarter, China’s exports seem poised to fall”.

They added that even with exports of coronavirus-related medical supplies providing a boost in recent weeks, this is not likely to offset external challenges.

It is also likely to be “unsustainable” as new cases peak and more countries ramp up their own production of goods, they said.

Economists flagged concerns over employment, with UOB’s head of research Suan Teck Kin noting that the employment indexes for both manufacturing and services were below 50. He said there is a “need to watch on that, especially with China’s official job creation number adjusted downwards quite significantly this year”.

Chinese Premier Li Keqiang’s annual work report at this year’s National People’s Congress made stabilising employment a top priority, targeting new urban employment of more than nine million – a drop from 11 million targeted last year.

Ms Iris Pang, ING’s chief economist for Greater China, said the above-50 figure last month suggested “there was some domestic demand pickup” compensating for weak markets overseas.

Policymakers have long sought to wean China off cheap exports and government spending in favour of domestic consumption, although it is unclear if this will yield results.

But Ms Pang, too, said employment could pose a problem, with a potential trickle-down effect on spending and local demand if job losses grow and domestic sectors cannot provide sufficient work for people who have been laid off.

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