PMI: China’s economy has its best month since Covid lockdowns imposed in March

The Chinese government the Purchasing Managers’ Index (PMI) for the manufacturing sector – which mainly covers large companies and state-owned companies – rose to 50.2 in June, the first time it crossed the 50 mark since February, according to the National Bureau of Statistics. A reading above 50 indicates that activity is increasing.

Meanwhile, the official non-manufacturing PMI, which includes construction and service industries, jumped to 54.7 in June from 47.8 in May. It was also the first time that the the index has returned to expansion territory in four months, and its strongest reading since May 2021.

Surveys provide the latest signs of recovery for China’s economy, as the country gradually reopens for business after months of widespread Covid shutdowns.

“Official PMIs point to a surprisingly rapid recovery in services activity this month following the lifting of virus restrictions,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

But he also pointed to continued weakness in the labor market, warning that this means household finances and consumer confidence remain fragile.

“Once the boost from reopening wears off, it will weigh on any further recovery,” he added in a research note.

Many cities – including Shanghai, mainland China’s business hub – had been under strict Covid restrictions since March, leading to a sharp contraction in economic activity. People were confined to their homes, shops and restaurants were closed and factories were closed. Analysts fear China’s economy could contract in the second quarter, putting the government’s annual growth target of 5.5% for 2022 out of reach.
Signs of an economic slowdown and soaring unemployment rattled senior government officials, who moved to ease Covid restrictions and boost confidence.
Premier Li Keqiang – No. 2 in the Chinese Communist Party hierarchy has repeatedly sounded the alarm over rising unemployment in recent months and urged the government to take stronger action to support businesses and stabilize growth.
On Monday, Li visited a vocational training center in Beijing and stressed the need to “get the economy back on track as soon as possible” and “reduce unemployment as soon as possible”.

Earlier this month, many cities lifted their lockdowns or eased Covid-related restrictions, including Shanghai.

On Tuesday, the National Health Commission said China would cut the quarantine period for international travelers by more than half, a major shift in the country’s Covid policy.

But analysts fear China may stick to tough Covid restrictions for some time.

China reduces travel quarantine but retains zero-Covid approach

On Wednesday, Chinese President Xi Jinping reaffirmed his commitment to the zero-Covid policy during a visit to Wuhan, the epicenter of the coronavirus epidemic. Xi said he would rather “temporarily sacrifice some economic growth” than “harm people’s health”, according to the official Xinhua news agency.

Zhiwei Zhang, chairman and chief economist of Pinpoint Asset Management, expects the recent surge in Chinese economic activity to continue through July as mobility restrictions continue. But Xi’s adherence to the Covid zero stance would limit growth, he added.

“China sticks to the zero Covid policy stance. I think that means economic growth is likely to remain below potential before policy is eased further,” Zhang said.

– CNN’s Yong Xiong in Seoul and the Beijing bureau contributed to the report.

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