MNI: China Factory Data Offers Light As Covid Curbs Ease

Chinese factory data perked up in May just as fiscal and monetary policies are slated to kick in for the second half of the year though the recovery momentum still needs to be further consolidated, according to analysts.

The official manufacturing purchasing managers’ index (PMI) rose to 49.6 in May, up from April’s two-year low of 47.4, as Covid-hit areas gradually resume work and production, according to data by the National Bureau of Statistics. PMI data published by Caixin, which tracks small and medium-sized manufacturers, showed the same trajectory, and rebounded by 2.1 points to 48.1.

Both the production and new order sub-indices of the official PMI rose just over 5 percentage points to 49.7 and 48.2, respectively, though still below 50, the divide between contraction and expansion.

This continues with the pattern of “strong supply and weak demand,” indicating policy focus may tilt to the demand side to expand consumption and investment, according to a research note by analysts from Golden Credit Rating.

Analysts expect the official PMI to rise above 50 in June, but the subsequent economic rebound may be tepid amid cautious market sentiment, (SEE: MNI: China Faces Slow Recovery From Covid-19 Lockdowns).

Macro policy should focus on stimulating demand in the next steps, considering the issuance of special treasury bonds and cuts to the reserve requirement ratio or policy interest rates, the analysts suggested, noting that both fiscal and monetary policies have ample room due to controllable prices and a more flexible yuan, (SEE: MNI: Yuan Finds A Range On Improved Economic Sentiment).

RECOVERING SERVICES

Official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, also rose to 47.8 in May from the previous 41.9, rebounding amid a steady decline of Covid-19 cases nationwide.

Businesses in retail sales, transportation, and financial services were above the expansionary 50 level in May, while that in accommodation continued to be at a level below 40.

Both the manufacturing and non-manufacturing PMI have remained below 50 for the third consecutive month, which reflects the severity of the current downward pressure that appears greater than the initial Covid-19 slowdown in 2020, wrote Wang Jingwen, senior analyst of China Minsheng Bank Research Institute in a WeChat blog post.

Wang expects the economic growth will usher in a turning point as pro-growth policies from top to bottom have been released and pressure from epidemic controls eases. As well, China’s financial hub Shanghai moved away from strict Covid-19 lockdown curbs on June 1, bolstering hopes for recovery.

PRO-GROWTH POLICIES

Last week, Premier Li Keqiang instructed local officials from across China to use whatever resources and new measures they have, to stabilise the economy and ensure reasonable growth in the second quarter, along with a quick fall in the unemployment rate.

And the State Council unveiled a 33-point package of policy items to help “get the economy back on a normal track”, which included vows of wider tax rebates, doubled credit support for SMEs, and measures to boost car purchases and expand infrastructure construction. SEE: MNI: China Speeds Up Special Bond Sales With June Target

Following top policymakers, Shanghai has laid out 50 measures to reignite the economy from the two-month lockdown. It is reported that at least nine provinces have released stimulus packages to buoy economic growth in the past week.