China factory activity expands at fastest rate in 9 years

Factory activity in China expanded at its fastest rate in almost a decade in July, amid signs of a wider recovery from the coronavirus crisis in some of Asia’s biggest economies.

The Caixin manufacturing purchasing managers’ index, a private sector survey, beat expectations to hit 52.8 in July, its highest level in more than nine years. A figure of more than 50 indicates expansion compared with the previous month.

The reading reflects a bounce back of activity after a sharp contraction earlier this year, when the country was under lockdown because of the coronavirus pandemic. China’s economy returned to growth in the second quarter and factory activity has increased in each of the past three months.

Separate surveys of South Korean and Japanese manufacturing sectors in July also showed the countries had their best performances since February, although neither country has returned to growth.

In Japan, the au Jibun Bank manufacturing PMI rose to 45.2. Respondents to the survey said the improvement was supported by the lifting of a state of emergency in May after a fall in coronavirus cases.

In South Korea, the decline in the value of exports slowed further last month, reflecting early signs of recovery in an economy that is seen as a bellwether for trade in the region.

Official data showed a 7 per cent fall in exports last month compared with the same period in 2019, marking an improvement from declines of more than 20 per cent in April and May.

The IHS Markit Manufacturing PMI for the country hit 46.9, from 43.4 in June.

South Korea’s export-dependent economy has been partly buffered by electronics exports, particularly computer chips, which have continued to see solid demand and prices amid a boom in online activity — such as content streaming and gaming — fuelled by working from home.

China’s factory activity has expanded despite a smattering of local coronavirus outbreaks.

“Overall, flare-ups of the epidemic in some regions did not hurt the improving trend of the manufacturing economy, which continued to recover as more epidemic control measures were lifted,” said Wang Zhe, senior economist at Caixin Insight Group.

After the first annual decline in more than four decades at the start of the year, China’s gross domestic product rose 3.2 per cent in the second quarter compared with the same period in 2019. The return to growth was powered by the country’s state-backed industrial sector but the data showed retail sales continued to suffer.

China also remains exposed to the poor performance of the global economy, with export orders contracting for a seventh consecutive month, according to the Caixin survey.

“We caution that manufacturing PMIs could moderate in coming months as recovery momentum softens across the world due to the protracted Covid-19 pandemic,” noted Ting Lu, chief China economist at Nomura.

He also pointed to “downward pressures on labour markets and the export sector”. 

Companies in China reported cutting staffing in July in order to improve efficiency or by not replacing employees who had left.

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