China Factory Activity Holds Up, Signaling Recovery Has Legs

China factory activity shrinks for second month amid high material prices, soft domestic demand | South China Morning Post

Back-to-back expansion in PMI is first for more than a year
It comes after several March indicators pointed to slowdown

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, slightly better than forecast. The positive reading — any number above 50 points to an expansion — was echoed by a private measure that showed factory activity growing for six straight months.

The official manufacturing purchasing manager index was 50.4 in April, the National Bureau of Statistics said on Tuesday. That compares with a median forecast of 50.3 in a Bloomberg survey, and a figure of 50.8 last month. 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.

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%. 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.

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.

“New export orders jumped again. This reflects the strength of Western economies, not entirely the domestic one,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “We do, however, see solid consumption on the ground.

Chinese onshore equities were volatile in early trading Tuesday as investors assessed the PMI data. The benchmark CSI 300 Index at one point erased all morning losses and was trading down 0.2% as of the mid-day break. The mainland gauge had rallied for four days in a row and the market will be shut for a holiday from Wednesday.

China’s economic engine is showing signs of resilience as factory activity continues to expand, hinting at a robust recovery. In this blog, we delve into the recent data and explore what it means for the world’s second-largest economy.

The Numbers Speak

Official Manufacturing PMI (Purchasing Managers’ Index):
- In April, China’s official manufacturing PMI reached 50.4, slightly surpassing expectations. A reading above 50 indicates expansion, and this positive figure reflects the country’s industrial strength.
- The PMI gauges factors such as production, new orders, employment, and supplier deliveries. It’s a crucial barometer of economic health.
Private Sector PMI (Caixin Manufacturing PMI):
- The Caixin manufacturing PMI, which primarily reflects small and medium-sized Chinese private enterprises, stood at 51.4 in April. This marks the fastest expansion since February 2023.
- The sustained growth for six consecutive months underscores the resilience of China’s industrial sector.

Key Takeaways

Export-Led Recovery:
- Beijing is banking on an export-led factory boom to offset challenges posed by the real estate slump.
- Despite mounting geopolitical threats and accusations of excess capacity, China aims to maintain momentum through robust production.
Domestic Consumption:
- While export orders surged, solid consumption within China also plays a pivotal role.
- The strength of Western economies contributes to export demand, but domestic spending remains a driving force.
Economic Targets:
- China’s policymakers are eyeing a growth target of around 5% for 2024.
- The positive factory gauges provide encouragement in achieving this goal.

Challenges Ahead

Industrial Profits:
- A surprise decline in Chinese industrial profits last month highlights risks.
- Balancing industrial growth with sustainable profitability remains a delicate task.
Geopolitical Tensions:
- Western countries’ accusations of excess capacity and trade imbalances pose challenges.
- Erecting new trade barriers could disrupt China’s export strategy.

Conclusion

China’s factory activity, like a sturdy oak, stands tall amid economic headwinds. As the world watches, the recovery gains traction, signaling that the dragon’s fire still burns bright.

frequently asked questions (FAQs) related to the topic of China’s factory activity and economic recovery:

What is the significance of the official Manufacturing PMI (Purchasing Managers’ Index)?
- The official Manufacturing PMI is a crucial economic indicator that gauges the health of China’s manufacturing sector. It considers factors such as production, new orders, employment, and supplier deliveries. A reading above 50 indicates expansion, while below 50 suggests contraction. In April, China’s official manufacturing PMI reached 50.4, signaling continued growth in factory activity.
What does the Caixin Manufacturing PMI reveal?
- The Caixin Manufacturing PMI focuses on small and medium-sized Chinese private enterprises. In April, it stood at 51.4, indicating the fastest expansion since February 2023. This sustained growth for six consecutive months underscores the resilience of China’s industrial sector.
How is China balancing export-led recovery and domestic consumption?
- Beijing is relying on an export-led factory boom to offset challenges posed by the real estate slump. While export orders surged, solid domestic consumption remains crucial. The strength of Western economies contributes to export demand, but China’s policymakers are also keen on maintaining momentum through robust production.
What are the economic targets for China in 2024?
- China aims for a growth target of around 5% in 2024. The positive factory gauges provide encouragement in achieving this goal.
What challenges does China face in its industrial sector?
- Industrial profits unexpectedly declined last month, highlighting risks. Balancing industrial growth with sustainable profitability remains a delicate task.
- Geopolitical tensions, including accusations of excess capacity and trade imbalances, pose additional challenges. Erecting new trade barriers could disrupt China’s export strategy.