China's factory activity disappoints as services output surges

CHINA'S factory activity expanded in June at a muted pace, while services far surpassed expectations as the economy continued to gradually improve from Covid outbreaks and restrictions.

The official manufacturing purchasing managers index rose to 50.2 this month from 49.6 in May, according to data released by the National Bureau of Statistics on Thursday (Jun 30). That was the first time the index expanded since February. A reading above 50 indicates expansion while anything below points to contraction. The number was below the median estimate of 50.5 in a Bloomberg survey of economists.

The non-manufacturing gauge, which measures activity in the construction and services sectors, climbed to 54.7, compared to 47.8 in May - well above the consensus forecast of 50.5. That was also the index's first expansion since February, before major cities like Shenzhen and Shanghai began locking down to contain the spread of the virus.

Government restrictions to contain Covid outbreaks have gradually eased over the last month. The financial hub Shanghai lifted its 2-month lockdown at the start of June by allowing more shops to reopen, more factories to resume production, and for port operation to pick up.

Still, the recovery has been fragile as the country sticks to its Covid Zero strategy, meaning the economy remains under threat of disruption should infections of the highly transmissible Omicron variant flare up again.

Chinese President Xi Jinping reaffirmed Covid Zero this week, even as the country cut the amount of time people spend in quarantine. He declared the policy the most "economic and effective" for the country.

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Economists, meanwhile, are holding firm on their gross domestic product growth forecasts for this year. The median projection in a Bloomberg survey for 2022 growth is 4.1 per cent, well below Beijing's annual target of around 5.5 per cent. Bloomberg's aggregate index of 8 early indicators showed some improvement in June, though the recovery remains muted. BLOOMBERG