China factory activity unexpectedly cools in April

Beijing Reuters --

China's manufacturing activity shrank unexpectedly in April, according to official data released on Sunday. This puts pressure on policymakers who are trying to stimulate an economy that is struggling after the Covid crisis, amid subdued demand globally and persistent property weakness.

According to the National Bureau of Statistics' data, the official manufacturing purchasing managers’ index (PMI), which measures the level of activity, fell to 49.2 in April from 51.9 in march, a decrease below the 50-point threshold that separates growth and contraction.

This was below the 51.4 expected by economists in a Reuters survey and the first decline since December when the manufacturing PMI stood at 47.0.

In the first quarter, China's economy grew more than expected thanks to robust consumption of services. However, factory output lagged behind due to weak global growth. Prices are slowing and bank savings are surging, raising questions about demand.

The Politburo - a top Communist Party decision-making organ – stressed on Friday that the key to a sustainable recovery is expanding and restoring demand. It warned, however, that the current improvements are mainly restorative, with 'weak momentum and insufficient demands'.

Zhao Qinghe, senior NBS statistician, said that the April contraction was due to a lack of demand on the market and a high base effect caused by the rapid manufacturing recovery during the first quarter.

The PMI shows that new export orders fell to 47.6 in March from 50.4.

Due to the weak global demand, the manufacturing sector, which employs around 18% of China’s workforce, is still under pressure. Reuters reported that some exporters at China's largest trade fair have frozen their investments, while others have reduced labor costs.

Last week, the Cabinet announced plans to boost employment and trade. These included supporting auto exports and facilitating visas of overseas businesspeople. It also provided subsidies for firms that hire graduates.

The confidence in the Chinese property sector remains fragile. It has been a cornerstone of China's economic growth for many years. Since mid-2020, there have been multiple crises including defaults by developers and the stalling of construction on pre-sold housing.

Although policy measures have improved conditions, there are still pockets of weakness and it appears that a full recovery is some time away.

The non-manufacturing PMI fell to 56.4 from 58.2 in march, despite the recent increase in consumption.

Retail sales increased in March, reaching near two-year levels. However, this was a relatively low base. Economists are unsure about the sustainability of these gains.

The composite PMI (which includes manufacturing and nonmanufacturing activities) dropped from 57.0 to 54.4.

Zhiwei Zhi, Pinpoint Asset Management's chief economist, stated that the PMI readings and other mixed economic indicators, such as robust holiday travel, and a muted activity on the property market, will likely continue to put pressure on the government in Q2 to maintain its fiscal and monetary policy support.