By Jonathan Cheng 

BEIJING--Chinese workers returned to factory floors in March, but operations remained slow due to sluggish demand, dampening hopes for a speedy recovery as the coronavirus pandemic continues to paralyze the global economy.

Chinese factory activity expanded in March, following sharp contractions in January and February, when Beijing locked down much of central Hubei province and took other drastic measures to contain the virus. However, smaller companies appeared to lag behind larger companies, many of them state-owned enterprises, in the recovery, according to new private and official surveys of China's manufacturers.

The Caixin China manufacturing purchasing managers index, which is tilted toward smaller private manufacturers, rose to 50.1 in March from 40.3 in February, Caixin Media Co. and research firm Markit said Wednesday. The March result is just above the 50 mark, which separates contraction from expansion.

A day earlier, on Tuesday, China's official manufacturing PMI, which focuses more on larger state-owned companies, showed a jump to 52.0 in March from a record low of 35.7 in February.

Though the official survey of 3,000 manufacturers, which is conducted by the National Bureau of Statistics, covers a much larger sample size than the private Caixin survey's 500 manufacturers, the surveys for the most part paint a similar picture of the broader trend. Both surveys recorded their lowest readings in February.

The bounceback in the March readings offered some hope for the economy, said Yang Weixiao, an economist at Founder Securities, though there is still cause for concern after such a severe disruption to industrial activity.

"The good news is that things are recovering; the bad news is the recovery path ahead of us is going to be slow and long," Mr. Yang said.

That is especially true for China's smaller businesses, which will likely struggle more to recover from the coronavirus shock than their larger competitors, since Chinese lenders have long favored larger companies with state ties, which are seen as more reliable borrowers, Mr. Yang said.

The March data also highlighted a new challenge for China's manufacturing sector: Even as the tapering off of new coronavirus cases in China allowed for some business activity to resume, worsening external demand and soft domestic consumer spending are emerging as longer-run concerns and keeping a lid on production, said Zhong Zhengsheng, an economist at CEBM Group, in a statement accompanying the release of Wednesday's manufacturing data.

Subindexes measuring production in both the official and private manufacturing surveys rose in March from the previous months. But new export orders, a measure of external demand, still showed contraction in both surveys.

Wang Liping, sales representative for a smaller private steel-product maker in southeastern Zhejiang province, said her company started resuming manufacturing its products, which include rolled steel plates, on Feb. 14--making it one of Zhejiang's first enterprises to come back online.

Even so, Ms. Wang said the company was still struggling to deliver on its orders.

"Internally, for our workers and staff, we have resumed normal working conditions, but externally, things like supplies, sales and logistics are only gradually getting back to normal," she said.

Suppliers of raw materials, especially hot rolled steelmakers, couldn't guarantee delivery in the first quarter of the year, making it difficult for her company to deliver its products on time. Also, many ocean shipping firms were only just restarting their services. All those issues need to be dealt with slowly, she said.

Beijing policy makers concerned about the coronavirus's hit on employment in the manufacturing sector have been offered a mixed picture.

A subindex in Wednesday's data release measuring employment signaled a continued reduction in head count across the industry in March, though the rate of decline was slower than in February, Caixin said, pointing to a combination of workers voluntarily leaving and employers seeking to cut costs.

A day earlier, the official PMI release showed employment climbing out of contraction territory for the first time in three years.

To counter the shocks from the deadly virus and anticipating worse times, Beijing has in recent weeks rolled out measures including tax cuts and cheaper loans to support the economy.

On Tuesday, China's State Council, or cabinet, said it would offer fresh funds for banks to lend and let local governments issue more bonds. To stimulate consumption, the cabinet also vowed to extend subsidies and tax waivers for purchases of electric vehicles for two more years in a bid to boost auto sales.

Despite the measures, economists widely forecast the Chinese economy to post a year-over-year contraction in the first quarter, a scenario unseen since the days of the Cultural Revolution from the mid-1960s to mid-1970s.

Such a pullback would complicate Beijing's year-end goal of doubling the overall size of the economy from a decade earlier. Economists say a growth rate of roughly 5.5% in 2020 is needed for Beijing to meet that goal.

Liyan Qi contributed to this article.

Write to Jonathan Cheng at


(END) Dow Jones Newswires

April 01, 2020 03:20 ET (07:20 GMT)

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