By Jonathan Cheng
SHANGHAI--China's economic recovery hit a speed bump in May as
the coronavirus pandemic began curbing the world's demand for
More and more Chinese factories have reopened for work in the
past three months as authorities have eased their once-aggressive
coronavirus measures. But now they are facing the dire reality of
falling orders from overseas customers.
The conundrum can be seen in official and private gauges of
China's factory activity. China's official manufacturing purchasing
managers index and a closely watched private survey, the Caixin
China manufacturing purchasing managers index, both showed factory
activity expanding in May.
For the official factory survey, the reading of 50.6 marked the
third straight month of expansion, while the Caixin survey showed
factory activity jumping to a four-month high of 50.7 in May, from
49.4 in April. For both indexes, the 50 mark separates expansion
Below the surface, however, there is evidence that China's
nascent economic recovery is already beginning to stall.
While China's official PMI, released by the National Bureau of
Statistics on Sunday, showed continued expansion, the magnitude of
the gains fell for a second straight month, and a subindex to
measure production slipped to 53.2 from 53.7 in April--pointing to
sluggish demand. Worryingly, the new-export-orders subindex, a
gauge of external demand, continued to remain deep in
contractionary territory, though it improved to 35.3 in May, from
33.5 in April.
Meanwhile, the Caixin PMI survey, which is tilted toward smaller
private manufacturers, showed new export orders contracting at a
historically sharp rate, Caixin Media Co. and research firm IHS
Markit reported Monday.
While work resumptions and stabilized supply chains have enabled
manufacturers to ramp up their output again, production remains
much more robust than demand, Wang Zhe, a senior economist at
Caixin Insight Group, said in a statement accompanying the Monday
Taken together, China's manufacturing surveys suggest that the
pace of the economic recovery from the coronavirus disruption is
slowing, due in large part to lackluster overseas buying, said Yang
Weixiao, a Beijing-based economist at Kaiyuan Securities.
"I'm afraid the fastest pace of recovery is already behind us,"
Mr. Yang said. "Weak demand is indeed the biggest problem."
Mr. Yang worries that soft demand is likely to continue to
hobble smaller Chinese companies' recovery efforts, which are
already lagging their larger peers in resuming work.
Premier Li Keqiang said last month at China's annual legislative
conclave that the country would formally abandon this year's annual
growth target, pointing to uncertainty around the pandemic.
Even so, Chinese leaders haven't given up entirely on growth,
which underpins two other goals for Beijing this year: the
eradication of poverty and the creation of nine million jobs to
ensure social stability.
The continued export weakness is likely to take a toll on both
of those efforts, since exports still account for a substantial
part of the Chinese growth equation. In response, policy makers
have pledged a slate of stimulus measures to boost the economy,
though the announced response has fallen short of efforts during
previous, less severe downturns.
A lack of export growth momentum could weigh on China's jobs
situation for years to come, said Mr. Yang, of Kaiyuan
If there is any silver lining in the latest economic data, it is
to be found outside China's factories.
The government's official nonmanufacturing PMI, released on
Sunday, climbed to a four-month high of 53.6 in May, boosted by a
strong recovery in the country's construction activity.
The survey covers services such as retail, aviation and
software, as well as the real estate and construction sectors.
The subindex measuring construction activity surged to 60.8 in
May from 59.7 previously, while the subindex measuring business
activity in the service sector edged up to 52.3 from 52.1 in
Liyan Qi and Grace Zhu contributed to this article.
Write to Jonathan Cheng at firstname.lastname@example.org
(END) Dow Jones Newswires
June 01, 2020 01:50 ET (05:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.