China factory data shows global slump undercut nascent recovery

[BEIJING] China's first official data for April suggest the economy has split into two tracks, with a domestic rebound undercut by weak overseas demand.

The official manufacturing purchasing managers' index (PMI) slipped to 50.8 from 52 a month earlier, according to data released by the National Bureau of Statistics on Thursday. New export orders plunged to 33.5 and a separate indicator more focused on smaller export-orientated firms returned to contraction.

By contrast, services and construction both rose further into expansion, taking the non-manufacturing PMI to 53.2.

China is recovering from the slump in February, when much of the domestic economy was shutdown to halt the spread of the coronavirus. Factories and companies are now back to work, but restrictions to contain the outbreak in other countries are weighing on export orders and disrupting supply chains.

"Manufacturing is on a double-track as domestic demand looks fine due to increased infrastructure spending, while export headwinds are clearly on the rise," said Zhou Hao, senior emerging markets economist at Commerzbank in Singapore. "The growth engine for now has to be more domestically dependent."

The Shanghai Composite rose 1.2 per cent as at 10.27am and the yuan edged higher to 7.0633 per US dollar.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"As the pandemic spreads quickly overseas, an acute contraction occurred to the global economy, which adds to the challenge facing China's trade," according to a statement from the National Bureau of Statistics released with the data. "Some manufacturing companies said newly signed export contracts have dropped sharply, and some existing orders were cancelled."

That will hit jobs, with the index for factory employment slowing to 50.2 and the index for the services job market still below the 50 level that separates expansion from contraction. A separate survey by the China Beige Book said that factories cut back employment in April, with a majority of the companies saying they expected this to be as good as it gets this year.

In March, industrial output and retail sales contracted less than in the first two months of the year, bringing some hope of a rebound in economic activity. The data today signal that any recovery will be at best uneven and may take a long time.

"The market's optimism of a quick recovery in China is fading, and Beijing may have to step up its policy support which focuses more on financial relief to help enterprises, banks and households survive the pandemic," said Lu Ting, chief China economist at Nomura International HK. He expects the Chinese economy to remain in contraction in the second quarter with export growth falling more than 30 per cent.

The rebound in construction to the highest level since January indicated that the government's efforts to boost demand with increased infrastructure spending were having an effect.

Investors will get more clarity in late May on what other steps the government will take this year at the National People's Congress.

BLOOMBERG