China's factory activity expands for 2nd month, shows sign of recovery

By Siuming Ho
 

China’s factory activity expanded for a second month, the best streak in more than a year, bolstering hopes that the rebound in the world’s second-biggest economy can be sustained.
 

The official manufacturing purchasing manager index reached 50.4 in April, the National Bureau of Statistics said on Tuesday. That’s largely in line with a median forecast of 50.3 in a Bloomberg survey and eased from March’s 50.8. Any reading above 50 points to an expansion.

The non-manufacturing measure of activity in construction and services was 51.2, compared with a forecast of 52.3 and a March reading of 53.

Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd., said the improvement in PMI was largely export driven.

“New export orders jumped again. This reflects the strength of Western economies, not entirely the domestic one. We do, however, see solid consumption on the ground,” Yeung said.

The factory gauge offers encouragement to Chinese policymakers who are relying on the country’s industrial producers to offset weak domestic demand and help the economy meet this year’s growth target of around 5 per cent. It’s the first major signal of China’s economic activity in the second quarter of 2024. In the first quarter, an initial bounce was followed by a slowdown in March across a slew of indicators.

What Bloomberg Economics Says:
 

China’s April PMI surveys contained mixed signals. On a positive note, the economy largely maintained momentum thanks to robust construction and production ... But it’s not all positive. Private demand is weak, reflected in notable slowdowns in the growth of new manufacturing orders and services activity.

Chang Shu, Chief Asia Economist

Zhao Qinghe, an analyst with the NBS, said the April PMI reading suggested the manufacturing sector has maintained its recovery momentum. But he noted in a Tuesday statement accompanying the data release that costs pressure on manufacturers increased.

Analysts say Beijing will likely need to boost public spending and cut interest rates in order to hit its growth goal, amid concern that a lopsided recovery will be hard to sustain as household spending remains weighed down by China’s real estate slump. 

The government is betting that an export-led factory boom can compensate, even though there are mounting geopolitical threats to that strategy. Western countries accuse China of building excess capacity in its industries and dumping cheap products abroad, and warn they may erect new trade barriers. A surprise decline in Chinese industrial profits last month also underscored the risks.

A private survey of factory activity, the Caixin manufacturing purchasing managers index, came in at 51.4 in April. That compares with a reading of 51.1 in March, and economist projections of 51. The Caixin measure largely reflects activity of small and medium-sized Chinese private enterprises, and it’s now been above 50 — the dividing line between expansion and contraction — for six straight months. 

The Caixin non-manufacturing and composite indexes will be released Monday, after a public holiday in China that lasts several days.