China leads slide in Asia factories as global demand slumps

BEIJING – China’s manufacturing activity unexpectedly eased in March, a private survey showed, leading a slide in factory gauges across Asia as the global economic outlook darkened.

China’s Caixin manufacturing purchasing managers’ index (PMI) – which covers mainly smaller and export-oriented businesses – eased slightly in March as new orders and output both declined, registering a 50 reading that is exactly the line between expansion and contraction.

The PMIs for factories across Asia showed a continued divergence between north and south in March. Japan, South Korea and Taiwan all stayed in contraction territory, while many of South-east Asia’s factory outlooks remained in expansion, although at a slightly slower or little changed pace from the previous month, according to S&P Global on Monday.

India’s PMI was an outlier that showed more resilience, with the March reading jumping further in expansion territory to 56.4 from 55.3.

Asia’s export powerhouses are seeing subdued demand amid a global economic outlook beset by elevated inflation and borrowing costs as well as rising risks of recession. North Asian economies are also dealing with geopolitical risk and volatility in the semiconductor industry. An oil price jump after the decision by Opec and its allies to slash supply by a million barrels has added to challenges in the global economic outlook.

In China, latest indicators show that the post-reopening recovery is being led mainly by the non-manufacturing sectors, particularly consumer spending on services and a pickup in construction.

The Caixin PMI index was also weaker than the official PMI for manufacturing, released on Friday. That index showed an expansion in manufacturing activity in March, although at a slightly slower pace than the previous month. The non-manufacturing index surged to the highest in more than a decade, the official data showed last week.

The PMI reading indicated that there were signs of a weakening in China’s rebound, Mr Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the release.

“The foundation for economic recovery is not yet solid,” he said. “Only by working hard to stabilise employment, increase household income and improve market expectations can the government reach its goal of restoring and expanding consumption.”

China’s exports have plunged in recent months, casting a shadow over the economy’s recovery. Even so, economists predict that the rebound in consumer spending and a pickup in government investment will be enough to push full-year growth above 5 per cent in 2023. Housing sales are also expanding again. China’s state media reported on Monday that the economy will see rapid growth in the second quarter.

Japan’s PMI was at 49.2 in March from 47.7 in the previous month. South Korea slipped to 47.6 from 48.5, the worst since September. Taiwan’s factory gauge stayed in contraction territory – below 50 – in March, sliding to 48.6 from 49 in the previous month, data showed on Friday.

There was a brighter outlook in Indonesia, South-east Asia’s biggest economy, where the PMI ticked up to 51.9 from 51.2, the best showing since September. Thailand and the Philippines eased slightly while staying in expansion. Vietnam fell to 47.7 from 51.2, while Malaysia posted a contraction at 48.8.

For South-east Asia, “optimism across the region remained strongly upbeat, and with inflationary and supply chain pressures subsiding, this bodes well for the recovery of the sector”, said Ms Maryam Baluch, an economist at S&P Global Market Intelligence. BLOOMBERG