Factory activity in China unexpectedly declines in April

BEIJING, April 30 (Reuters) – China’s manufacturing activity shrank unexpectedly in April, official data showed on Sunday, increasing pressure on policymakers trying to boost an economy struggling with a post-Covid-19 recovery amid subdued global demand and persistent weakness in property.

The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 51.9 in March, according to data from the National Bureau of Statistics, below the 50-point mark that separates expansion and contraction in activity on a monthly basis.

It missed expectations of 51.4 tipped by economists in a Reuters poll and marked the first decline since December, when the official manufacturing PMI was at 47.0.

The world’s second-largest economy grew faster than expected in the first quarter thanks to robust services consumption, but factory output has lagged behind weak global growth. Lower prices and increasing bank savings raise doubts about demand.

The Politburo, a top decision-making body of the ruling Communist Party, stressed on Friday that the recovery and expansion of demand is key to a lasting recovery and warned that the current improvement is mainly restorative “with weak momentum and insufficient demand”.

“Lack of market demand and the high base effect from the rapid output recovery in the first quarter” were among the factors that led to the decline in April, said senior NBS statistician Zhao Qinghe.

New export orders fell to 47.6 from 50.4 in March, the PMI showed.

The manufacturing sector, which employs about 18% of China’s workforce, remains under pressure due to weak global demand. Some exporters told Reuters at the country’s biggest trade show that they have frozen investment and some have cut labor costs in response.

To boost trade and employment, the government last week unveiled plans including supporting car exports, simplifying visas for foreign businesspeople and providing subsidies to firms that hire college graduates.

Confidence in the property sector, which for years has been a mainstay of China’s growth, remains fragile. Several crises since mid-2020 have included developers defaulting on debt and halting construction of pre-sold housing projects.

While political support measures have helped to improve conditions in the industry, there are still weak pockets and a full recovery appears to be some way off.

Despite the recent strength in consumption, the PMI for non-industry fell to 56.4 from 58.2 in March.

Data this month showed retail sales growth rose in March to near two-year highs, but that was off a low base and economists are cautious about the sustainability of such strength.

The composite PMI, which includes manufacturing and non-manufacturing activity, fell to 54.4 from 57.0.

The PMI readings, along with other mixed economic signals, including robust holiday travel and subdued property market activity, “are likely to keep pressure on the government to continue its supportive fiscal and monetary policies in the second quarter,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

Reporting by Ellen Zhang, Roxanne Liu and Ryan Woo; Edited by Shri Navaratnam and William Mallard

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