CHINA’S factory activity struggled in April, a private survey showed, adding to signs of imbalance within the country’s economic recovery.

The China Caixin manufacturing purchasing managers index (PMI) dropped to 49.5 last month from 50 in March, pointing to a contraction in factory output for the first time since January, Caixin and S&P Global said in a statement on Thursday (May 4).

The index covers mainly smaller and export-oriented businesses compared to the official PMI, which unexpectedly fell in April to 49.2.

“This suggests that China’s economic recovery significantly slowed after Covid-19 infections peaked at the start of this year,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the data. “It remains to be seen if the rebound is sustainable after a short-term release of pent-up demand.”

China’s economy expanded at the fastest pace in a year last quarter, largely driven by consumer spending as the nation ended its Covid curbs. The recovery has been patchy, though. Factories have lagged the consumer figures, the property sector’s rebound has only just started, and investment has continued to fall.

The consumer rebound was evident in tourism and spending figures over the Labour Day holidays, which returned to pre-pandemic levels as millions of people travelled to major cities and tourist hotspots across the country. Several major banks now expect annual gross domestic product growth to outperform Beijing’s target for the year of about 5 per cent.

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The Caixin report, though, noted domestic demand as a “main drag” on the April manufacturing PMI figures. A subindex for total new orders fell back into contraction last month.

The job market also deteriorated, Wang said, adding that “as market demand remained subdued, businesses trying to slash costs were reluctant to hire more workers, with some even announcing layoffs”.

Chinese leaders remain cautious about the growth outlook, signalling that they will keep supporting the economy as needed. A top International Monetary Fund official said this week that China “has the policy space to keep monetary policy accommodative because inflation is very much muted”.

A PMI reading above 50 indicates expansion from the previous month, while anything below suggests a contraction. BLOOMBERG