China's factory, service sectors expand amid recovery

BEIJING • China's factory and service sectors snapped three months of activity decline in June, business surveys showed yesterday, as the authorities lifted a strict Covid-19 lockdown in Shanghai, reviving output and consumer spending.

The official manufacturing purchasing managers' index rose to 50.2 last month from 49.6 in May, the National Bureau of Statistics (NBS) said. That slightly missed the forecast for 50.5 in a Reuters poll but rose above the 50-point mark that separates contraction from growth for the first time since February.

Though activity in China is gaining momentum after lengthy Covid-19 lockdowns in April and May, headwinds, including a still subdued property market, soft consumer spending and fear of any recurring waves of infections, persist.

"Today's NBS numbers were encouraging to see, even if manufacturing slightly underwhelmed and expectations were for an improvement, given the easing of lockdown restrictions," said City Index senior market analyst Matt Simpson.

Investors cheered the signs of economic recovery, with China's major stock indexes rallying more than 1 per cent and set for their biggest monthly rise in nearly two years. "Even though the manufacturing sector continued to recover this month, 49.3 per cent of the companies reported orders were insufficient," said NBS senior statistician Zhu Hong. "Soft market demand is still the main problem facing the manufacturing industry."

He added: "Some firms have faced a squeeze in their profit margins, and relatively huge operating difficulties."

Shanghai, located at the heart of the Yangtze River Delta manufacturing area, lifted a citywide lockdown on June 1, allowing more factories in the region to resume production. However, social distancing rules such as those on restaurant dining were still in place throughout the month.

An Amcham China survey yesterday showed supply chains received some relief last month, with fewer companies reporting Covid-19 disruptions but an overwhelming 98 per cent of firms in the poll still experiencing a negative impact from Covid-19 on their business.

Analysts expect further improvement in economic conditions in the third quarter, although the official gross domestic product target of around 5.5 per cent for this year will be hard to achieve unless the government abandons the zero-Covid-19 strategy.

The government said this week that it would slash Covid-19 quarantine requirements for international travellers, and removed an indication of travel through Covid-19-hit cities on a state-mandated mobile app for its citizens, paving the way for greater exchanges of people and goods.

However, President Xi Jinping defended the zero-Covid-19 policy on Tuesday, saying China is willing to accept some temporary impact on economic development over harm to people's health.

REUTERS