China’s Factory Outlook Brightens in June as Recovery Continues By Bloomberg

(Bloomberg) — A gauge of China’s manufacturing activity climbed in June, signaling the country’s gradual recovery from the coronavirus slump remains on track.

  • The official manufacturing purchasing managers’ index rose to 50.9 from 50.6 a month earlier, according to data released by the National Bureau of Statistics on Tuesday. The non-manufacturing gauge rose to 54.4. Readings above 50 indicate improving conditions.

Key Insights

  • A sub-index of new export orders climbed to 42.6, while manufacturing employment fell to 49.1
  • The data indicate that the government’s measured stimulus measures may be taking effect. Still, with the coronavirus hitting global demand and continued outbreaks of the virus, including in Beijing, the rebound may prove hard to sustain.
  • While parts of the economy have recovered from the virus shutdowns, there’s an apparent divergence between demand and supply — factories and companies have returned and output is growing again, but exports are domestic retail sales are shrinking.
  • Tourism revenue fell almost 70% during a three-day holiday last week compared to the same period in 2019, according to China International Capital Corp. Severe flooding in southern China may also have slowed the pace of production in some areas, and a recent flare-up of the coronavirus has also hit confidence.
  • “While work restart levels are high, the recovery of demand has been slow, weighing on the pace of improvement in industrial production,” Lu Zhengwei, chief economist at Industrial Bank Co in Shanghai, wrote in a report this week.
  • The “COVID-19 cases in Beijing that surfaced on 11 June now seem under control, following quick and targeted containment actions,” Barclays (LON:) economists led by Eric Zhu wrote before the data was announced. “Unlike the national or city-wide lockdowns used earlier this year, we think this time’s local and targeted restrictions are unlikely to meaningfully hold back the recovery.”

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  • A separate PMI indicator that gauges China’s high-tech industries slowed significantly this month.
  • A Bloomberg Economics gauge of early indicators on the economy picked up in June, with a better performance for smaller companies tempered by the still-grim global outlook.

©2020 Bloomberg L.P.

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