China Manufacturing Begins To Rebound as COVID-19 Restrictions Ease

Manufacturing in China started to improve in May after the country lifted coronavirus lockdowns that shut down China’s richest and most populous city of Shanghai, as well as other industrial areas, according to an official survey released Tuesday.

The Purchasing Managers’ Index of the National Bureau of Statistics of China’s manufacturing industry jumped from 47.4% in April to 49.6% this month on a 100-point scale. Numbers below 50 reveal activity contracting.

New orders, exports and employment all improved during the month of May. More businesses in Shanghai are allowed to reopen this week after COVID-19 outbreaks were considered by the government as under control.Other industrial centers like Shenzhen and Changchun were also forced to shut down this spring due to the coronavirus, which disrupted the cities’ manufacturing and trade.

Tuesday’s data shows that “activity has started to rebound as containment measures were rolled back,” Capital Economics’ Sheana Yue said in a report, adding that the recovery “is likely to remain tepid amid weak external demand and labor market strains.”

More businesses in Shanghai, China’s most populous city, are being allowed to reopen this week after outbreaks were deemed to be under control. Other industrial centers including Shenzhen in the south and Changchun in the northeast also were temporarily shut down, disrupting manufacturing and trade.

Chinese President Xi Jinping is zeroing in on the ties that China’s state banks and other financial stalwarts have developed with big private-sector players, expanding his push to curb capitalist forces in the economy.

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Source: China manufacturing begins to rebound as COVID-19 restrictions ease | Fox Business

In April, China’s industrial groups posted their biggest profit decline in two years, the latest sign of economic and corporate woes caused by a wave of coronavirus lockdowns. Industrial profits fell 8.5% in April from the same period a year earlier, the biggest drop since March 2020, when China was also engulfed in restrictions to deal with the initial outbreak of the virus.

The cutbacks are increasing pressure on the government, which is pushing to maintain its zero-Covid policy to eliminate infections through mass testing, lockdowns and quarantines. The strategy is a priority for President Xi Jinping this year as he seeks an unprecedented third term in office, but its rising economic costs pose a serious threat to the country’s 5.5% growth goal by 2022.

Official data last week showed a drop in overall activity in April at a time when Shanghai, China’s financial center, was closed and residents were chained to their homes. Retail sales, an important indicator of consumption, fell 11%, while industrial production also fell. Unemployment hit 6.1 percent, the highest level in two years. The lockdowns are estimated to have affected dozens of cities and hundreds of millions of people. Restrictions are also being put in place in Beijing, which reports dozens of cases daily.

The latest outbreak in China was centered mainly in Shanghai, where about 63,000 infections have been reported and where many residents are still staying at home. Officials stressed the need for a rapid citywide response to the highly contagious Omicron variant. Zhu Hong, senior statistician at the National Bureau of Statistics, said the outbreak “had a big impact on the production and operation of industrial enterprises” in April, adding that profits fell by 22% for manufacturing companies in particular.

The authorities, which had already eased monetary policy in response to last year’s real estate liquidity crunch, have taken other steps to support the economy. Last week, China’s mortgage lending rate was cut for the second time this year. Analysts at Goldman Sachs pointed to the impact of “high raw material costs” on industrial profits, in addition to supply chain disruptions caused by Covid lockdowns at manufacturing centers.

“We expect further policy easing on the fiscal front to stimulate demand, given the downward pressure on growth and the uncertainty of the pace of recovery from the Covid disruption,” they said.

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