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China’s manufacturing sector has been hit by the slowdown in export demand due to the economic impact of the global coronavirus pandemic, even as factories in the world’s second-largest economy resumed production, two data sets showed. April published on Thursday.
The results of a private survey, the Caixin / Markit Manufacturing Purchasing Manager Index (PMI), for April, was 49.4 in contract territory. Analysts polled by Reuters had expected Caixin / Markit manufacturing PMI to hit 50.3, up from 50.1 in March.
Meanwhile, China’s National Statistical Office said manufacturing activity in the country expanded slightly, reporting an official manufacturing PMI of 50.8 for the month of April, compared to 52.0 in March. Analysts polled by Reuters expected the official manufacturing PMI to hit 51.0 in April.
PMI readings above 50 indicate expansion, while those below this level indicate contraction.
The Caixin / Markit survey presents a larger mix of small and medium-sized companies. In comparison, the official PMI survey generally polls a large proportion of large companies and state-owned companies.
In February, the officially manufactured PMI hit a record low of 35.7 and the Caixin reading also dropped to a record low of 40.3 when China was hit by the coronavirus outbreak that first emerged from Wuhan City. Large-scale blockades have been in place since late January to curb the spread of the disease officially known as Covid-19, stopping the world’s second-largest economy.
In the first quarter of 2020, China’s GDP contracted 6.8% over the previous year, the first decline since at least 1992, when official quarterly GDP records began.
Blockades in China have started to increase with people returning to work as the number of new Covid-19 cases drops. But demand for Chinese products is now expected to decline after the coronavirus has spread to the rest of the world, raising concerns about a global recession.
The China National Statistical Office said in its analysis of PMI readings that the recovery in demand was weaker than the recovery in production, according to a CNBC translation of its Mandarin-language publication. This was particularly true in sectors such as textile and clothing manufacturing and chemical raw material production.
The office also reported increased uncertainties in the export market with some factories reporting canceled orders.
“The spread of the epidemic has accelerated abroad and global economic activity has contracted sharply,” he said, adding that China’s foreign trade now faces greater challenges.
An analysis of the Caixin / IHS survey reflected similar sentiments.
“China’s economic recovery was hampered by declining external demand, even though the internal epidemic was largely contained,” said Zhengsheng Zhong, chief economist at CEBM Group, a subsidiary of Caixin.
The Caixin / IHS survey showed a sharp contraction in foreign demand in April, as “the indicator for new export orders fell sharply to a lower level than in February, pointing to a sharp contraction in demand foreign in the middle of the coronavirus pandemic. ” Zhong wrote in a press release.
“While manufacturing output expanded at a faster rate, export orders plummeted amid sluggish demand,” he added. Meanwhile, there was only a “limited recovery in domestic consumption”.
Despite the fact that the rate of resumption of work of large companies reached more than 98% as of April 25, only 77.3% of them reported operating at 80% or more of their usual capacity.
“Therefore, utilization rates across the country, especially those of small and medium-sized enterprises, as well as those that have not yet resumed working, still face serious winds against slow domestic and external demand,” he said. Bruce Pang, head of macro and strategy. research at China Renaissance Securities.
The Chinese authorities have implemented measures to support the economy.
In early April, the People’s Bank of China lowered benchmark interest rates.
The Chinese government will also need to increase public sector spending to drive growth this year, said Michael Pettis, a professor of finance at Peking University.
Even before the Covid-19 outbreak, China had to shore up public spending to achieve growth targets that were higher than the actual underlying economic growth rate, so there would be more of that spending this year due to the consequences of the Pandemic, Pettis said “Street Signs” on CNBC.
“Exports will be terrible, consumption will decrease, private investment will decrease, so that means the public sector must bear an even greater burden, an even greater proportion of growth,” he said.
CNBC’s Evelyn Cheng contributed to this report.
