Chinese companies see pick-up in economic activity as they start to emerge from shutdown

Chinese companies have reported a pick-up in economic activity this month as they start to recover from the coronavirus shutdown, a new survey shows.

For the first time in months, some encouraging figures were released today, but analysts have cautioned that a full near-term recovery is unlikely given that foreign demand for China’s goods and services will remain low as many countries remain in lockdown.

China’s coronavirus infections have slowed significantly from their peak in February, and many factories have resumed work. 

But the country, which is where the pandemic originated, still faces a lack of demand as the situation in Europe, the US and other countries is not showing signs of improvement yet.

China’s manufacturing purchasing managers’ index (PMI) rose to 52 in March, where a reading above 50 indicates growth. It’s a big jump from a plunge to a record low of 35.7 in February, and above analysts’ expectations.

China’s services sector also bounced back, with the official non-manufacturing PMI rising to 52.3 from 29.6 in February, a separate survey has showed.

But the report cautioned that the data ‘does not mean that China’s economic operation has returned to normal’ – a view echoed by many analysts, who still expect a global recession.

Iris Pang, ING’s chief economist for China, said the improvement could be brief as the situation in China has not returned to where it was before the virus struck. 

‘Partial lockdowns are expected to continue in some areas, and even if there are fewer lockdowns, there will still be rules on social distancing, which will continue to dampen retail and catering businesses,’ she said.

‘Global demand is also likely to remain very soft, which will affect export orders for China.

‘Factories in some economies, including China, need to follow social distancing, so production capacity is unlikely to be much better in April compared to March.’

For manufacturing, the good news is that production and new orders rose above 50 in March.

However, export orders and imports were still below 50, which reflects the fact that while domestic demand has recovered, demand from abroad not quite so as many countries around the world remain in lockdowns.

‘The biggest problem facing China’s economy in the second quarter is the slumping foreign demand,’ said Nie Wen, an economist at Shanghai-based Hwabao Trust.

However, stock markets in the UK and Europe have been lifted by the positive figures, with most major indexes in positive territory today.

Chris Beauchamp, a market Analyst at IG, said: ‘The wave of optimism continues to wash over markets, after a surprisingly-strong Chinese PMI figure overnight.’

But he added: ‘Investors should be careful about drawing too many inferences from one PMI figure, since one swallow does not a summer make, but for now markets are continuing to look for the positives, while at the same time equities are still seeing inflows.’ 

Economists are already forecasting a steep contraction in China’s first quarter GDP, with some expecting a slump of 9 per cent or more – the first such contraction in thirty years.

The coronavirus has wreaked havoc along global supply chains and severely hurt foreign demand amid tight lockdowns in Europe, the United States and a number of other key economies where daily life has ground to a halt.