Reuters | Jun 30, 2020 07:15
By Yawen Chen and Ryan Woo
BEIJING (Reuters) - China's factory activity expanded at a stronger pace in June after the government lifted lockdowns and stepped up investment, but persistent weakness in export orders suggests the coronavirus crisis will remain a drag on the economy for some time.
The official manufacturing Purchasing Manager's Index (PMI) came in at 50.9 in June, compared with May's 50.6, National Bureau of Statistics (NBS) data showed on Tuesday, and was above the 50.4 forecast in a Reuters poll of analysts.
The 50-point mark separates expansion from contraction on a monthly basis.
The uptick was underpinned by the quickening pace of expansion in production. The forward-looking total new orders gauge also brightened, rising to 51.4 from May's 50.9, suggesting domestic demand is picking up as industries from non-ferrous metals to general equipment and electrical machinery all showed an improvement.
But export orders continued to contract, albeit at a slower pace, with a sub-index standing at 42.6 compared to 35.3 in May, well below the 50-point mark.
"Despite the strong recovery between March and mid-June, we believe a full economic recovery remains distant. In our view, it is too early for Beijing to reverse its easing stance," Nomura analysts wrote in a note to clients.
In a statement, NBS official Zhao Qinghe underscored the prevailing uncertainty about the outlook, noting that small firms in China are suffering more than their larger peers.
Indeed, despite a flurry of government measures to support smaller companies, the PMI survey showed activity in these firms contracting last month.
Shanghai prime machinery (HK:2345), a Chinese manufacturer of fasteners that has been forced to close a factory in Germany this year due to the pandemic, said on Monday it expects to record a net loss of up to 40 million yuan in the first half of 2020, compared to a net profit of 114.7 million yuan in year-ago period.
"The divergence of the domestic recovery and foreign orders contraction highlights that the Chinese economy remains affected by the global situation for the Covid-19 pandemic," ING said in a note.
Beijing has stepped up support measures this year to revive the economy, which contracted sharply in the first quarter.
High frequency Chinese data tracked by Nomura showed a flurry of better-than-expected indicators recently, while higher spending - particularly in infrastructure - was expected to boost economic activity for the rest of this year.
A separate official survey on China's services sector showed activity expanded at a faster clip in June. The non-manufacturing PMI rose to 54.4, from 53.6 in May, suggesting steadily stabilising business confidence.
Still, construction activity, a key driver of growth, slowed from the previous month, highlighting the uneven nature of the recovery both in the sector and the overall economy.
Some analysts have warned against being overly optimistic about the outlook given uncertainties around the COVID-19 pandemic.
While the improvement this month might be due to easing in restrictions across some countries, export demand has remained weak overall with infections steadily rising across the world.
Some fear a worldwide recession might turn out to be more pronounced than expected in the event a second wave of coronavirus cases force many countries to reimpose strict lockdowns.
Adding to the worries domestically is a cluster found earlier this month in a food market in Beijing, underscoring the ever present economic threat posed by the virus.
Despite stronger demand, factories reduced headcount for the second time in June since they reopened, with the survey's sub-index falling to 49.1 from 49.4 in May.
"The contrast between rising new orders and more job-shedding shows companies were still cautious about demand recovering in the short term," Huatai securities macro analyst Yang Chang said.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
More markets insights, more alerts, more ways to customize assets watchlists only on the App
More content, faster quotes and charts, and a smoother experience is available only on the App.