China’s factory and service sectors snapped three months of activity decline in June, business surveys showed on Thursday, as authorities lifted a strict Covid lockdown in Shanghai, reviving output and consumer spending.
The official manufacturing purchasing managers’ index (PMI) rose to 50.2 in June from 49.6 in May, the National Bureau of Statistics (NBS) said.
While activity has sped up since various Covid lockdowns imposed since March have been rolled back, headwinds persist, including a still subdued property market, soft consumer spending and fear of any recurring waves of infections.
A sub-index for production stood at 52.8, the highest since March 2021, while new orders also returned to expansionary territory for the first time in four months, although growth remained weak.
“Even though the manufacturing sector continued to recover this month, 49.3 per cent of the companies reported orders were insufficient,” said Zhu Hong, senior statistician at NBS. “Soft market demand is still the main problem facing the manufacturing industry.”
“Some firms have faced a squeeze in their profit margins, and relatively huge operating difficulties,” Zhu added.
The factory hub of Shenzhen was shut for a week in March while Shanghai, located at the heart of the Yangtze River Delta manufacturing area, was put under a strict lockdown for about two months before curbs were lifted on June 1.
An Amcham China survey showed on Thursday supply chains received some relief in June, with fewer companies reporting Covid disruptions but an overwhelming 98 per cent of firms in the poll still experiencing a negative impact from Covid on their business.
Analysts expect further improvement in economic conditions in the third quarter, although the official GDP target of around 5.5 per cent for this year will be hard to achieve unless the government abandons the zero-Covid strategy.
“This surge of economic activities will likely keep the momentum into July, as further relaxation of mobility restriction takes place,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
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