China economy steadied further in June, as slow recovery from coronavirus continued
- 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 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.
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.
01:07
What is the purchasing managers' index (PMI)?
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.
“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.”
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.
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China to restrict visas for Americans 'interfering’ in Hong Kong
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.