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China's factory activity expands, but job losses quicken amid weak exports: Caixin PMI

BEIJING (Reuters) – China’s factory activity grew at a faster clip in June after the government lifted coronavirus lockdown measures and ramped up support steps, but the health crisis continues to pressure exports and jobs, a private business survey showed on Wednesday.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.2 last month, the fastest pace of growth since December, and up from May’s 50.7. The 50-mark separates growth from contraction on a monthly basis.

Analysts polled by Reuters had expected a reading of 50.5.

China’s economy is gradually emerging from a sharp 6.8% contraction in the first quarter, with much of the country reopened after weeks of disruptions early in the year due to strict lockdown measures.

But demand remained subdued, as many manufacturers are still struggling with reduced or cancelled overseas orders amid faltering global demand.

While some of China’s trading partners are easing curbs and re-booting their economies, many are still grappling with the pandemic while a surge of worldwide infections over the past week has raised the risk of a deeper and prolonged global recession.

Consumers have also remained cautious amid job losses and fears of a fresh wave of infections in China as a cluster emerged in Beijing last month.

New export orders stayed firmly in contractionary territory, the survey showed, although the downturn eased from the sharp slump in May.

“Overall manufacturing demand recovered at a fast clip, but overseas demand remained a drag,” said Wang Zhe, senior economist at Caixin Insight Group.

The government has already rolled out a raft of easing steps this year, including reserve requirement cuts and targeted lending support and tax breaks for virus-hit firms. It has also ramped up local bond issuance in the hopes of spurring infrastructure growth.

Despite a pick-up in domestic orders, the uncertain outlook forced factories to cut payrolls for the sixth consecutive month, with the pace of job shedding accelerating. Avoiding mass unemployment is a top government priority, with a target to create over 9 million urban jobs this year.

“We should still pay attention to the pressure on employment. Top policymakers have repeatedly stressed the importance of expanding employment channels. For some time to come, increasing employment will remain an arduous task,” Wang said.

Given the uncertain outlook, the government said in late May it was not setting an annual growth target, for the first time since 2002.

An official survey on Tuesday also showed China’s factory activity grew at a quicker pace in June but smaller firms were still suffering and exporters struggled with shrinking orders, pointing to an uneven recovery.

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China's factory activity quickens, but pandemic drags on exporters and recovery

BEIJING (Reuters) – China’s factory activity expanded at a stronger pace in June in a boost to hopes for a quick economic recovery globally and at home, but the persistent weakness in export orders suggests the coronavirus crisis will remain a drag on growth 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 (2345.HK), 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.

DOWNWARD PRESSURE

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, including power production, property and auto sales, 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 Purchasing Managers’ Index rose to 54.4, from 53.6 in May, suggesting steadily stabilising business confidence.

Still, a sub-index for construction activity, a key driver of growth, fell to 59.8 from 60.8 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.

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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.

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Business

China's June factory activity quickens, but exporters struggle amid pandemic

BEIJING (Reuters) – China’s factory activity expanded at a stronger pace in June, as the economy continues to recover after the government lifted strict lockdowns and ramped up investment, but export orders remained weak as the global coronavirus crisis shatters demand.

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, which grew to 53.9 in June from 53.2 the previous month.

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.

“Although the PMI index picked up this month and the manufacturing sector recovered steadily, it is also important to see that uncertainty remains,” NBS official Zhao Qinghe said in a statement accompanying the data.

DOWNWARD PRESSURE

High frequency Chinese data tracked by Nomura showed a flurry of better-than-expected indicators recently, including power production, property and auto sales, prompting the brokerage to raise its GDP growth forecast for the second quarter to 2.6% from 1.2%.

While higher spending, particularly in infrastructure, was expected to boost economic activity for the rest of this year, some analysts have warned against being overly optimistic about the outlook given uncertainties around the COVID-19 pandemic.

Export demand has remained weak 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, which has steadily grown to more than 200 cases associated with a food market emerged in Beijing, underscoring the ever present economic threat posed by the virus.

Beijing has announced a range of measures to bolster the economy and support jobs, but the global downturn has meant activity remains patchy in most sectors.

Related Coverage

  • China service sector grows at fastest pace in seven months in June: official PMI

Despite stronger demand, factories reduced headcount for the second time in June since they reopened, with a sub-index falling to 49.1 from 49.4 in May, the survey showed.

A separate official survey on China’s services sector showed activity expanded at a faster clip in June. The non-manufacturing Purchasing Managers’ Index rose to 54.4, from 53.6 in May, suggesting steadily stabilising business confidence.

Still, a sub-index for construction activity, a key driver of growth, fell to 59.8 from 60.8 the previous month, the survey showed, highlighting the uneven nature of the recovery.

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Business

China's June factory activity quickens to three-month high: official PMI

BEIJING (Reuters) – China’s factory activity expanded at a faster pace in June, beating expectations, as the economy continues to recover after the government lifted strict lockdowns and ramped up investment, but weak global demand is likely to be a drag on growth.

The official manufacturing Purchasing Manager’s Index (PMI) rose to a three-month high of 50.9 in June from 50.6 in May, above the 50-point mark that separates growth from contraction on a monthly basis. Analysts had expected it to slow to 50.4.

While most of the economy has reopened, many manufacturers are still struggling due to weak overseas orders as global demand falters. Domestic recovery also remains mild and below historic levels, amid renewed worries about a second wave of infections.

“We believe the economy is still far from a full recovery and Beijing cannot afford to reverse its easing stance,” Nomura analysts wrote Monday.

Related Coverage

  • China service sector grows at fastest pace in seven months in June: official PMI

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