China plant activity picks up in June, but exporters struggle in pandemic

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Activity in Chinese factories increased at a faster pace in June, as the economy continues to recover after the government lifted tight restrictions and increased investment, but export orders remained weak then that the global coronavirus crisis is breaking demand.

The official PMI (Manufacturing Purchasing Manager) index stood at 50.9 in June, up from 50.6 in May, according to data from the National Bureau of Statistics (NBS) on Tuesday, and was above the forecast of 50, 4 in a Reuters analyst survey.

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The score of 50 points separates the expansion from the contraction on a monthly basis.

The increase was supported by the accelerating pace of production growth, which fell to 53.9 in June from 53.2 the previous month.

The forecast gauge for new total orders also thinned to 51.4 from 50.9 in May, suggesting a recovery in domestic demand, with the non-ferrous metal, general equipment and electrical machinery industries being all improved.

But export orders continued to contract, albeit at a slower pace, with a sub-index at 42.6 from 35.3 in May, well below the 50-point mark.

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

FALLING PRESSURE

Chinese high-frequency data tracked by Nomura showed a wave of better-than-expected indicators recently, including power generation, real estate and auto sales, prompting the brokerage to raise its GDP growth forecasts for the second quarter at 2.6%, against 1.2%.

While higher spending, particularly on infrastructure, is expected to boost economic activity for the rest of the year, some analysts have warned of excessive optimism about the outlook given the uncertainties surrounding the COVID pandemic – 19.

Export demand has remained weak, with infections steadily increasing worldwide. Some fear that a global recession will prove deeper than expected in the event that a second wave of coronavirus cases force many countries to reimpose strict bans.

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To compound national concerns, a cluster found earlier this month, which has gradually increased to more than 200 cases associated with a food market in Beijing, highlighting the still-present economic threat posed by the virus.

Beijing has announced a series of measures to support the economy and support jobs, but the global downturn has left activity uneven in most sectors.

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

A separate official survey of the service sector in China showed that activity increased at a faster pace in June. The non-manufacturing purchasing managers’ index rose to 54.4 from 53.6 in May, suggesting a steady stabilization in business confidence.

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

(Report by Yawen Chen and Ryan Woo; edited by Shri Navaratnam)

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