According to a report by the National Bureau of Statistics, China’s manufacturing activity unexpectedly shrank in April, with the official manufacturing purchasing managers’ index dropping to 49.2 from 51.9 in March, the first time it has fallen below the contraction level of 50 since December. The decline indicates that the country’s economic recovery is uneven and may struggle to maintain momentum. Economists had forecast a PMI of 51.4. The non-manufacturing gauge, which measures activity in the services and construction sectors, also fell to 56.4 from 58.2 in March, with a reading above 50 indicating expansion.
China’s economy, the world’s second-largest, expanded at its fastest pace in a year in Q1 2023, driven by consumer spending following the end of Covid restrictions. However, the unexpected contraction in manufacturing suggests that sustaining the recovery remains uncertain. Although several central banks have raised their annual growth forecasts to 6% or higher, the property sector’s rebound has only started. Industrial firms are struggling to turn a profit while youth unemployment remains high.
Zhou Hao, the chief economist at Guotai Junan International Holdings, said that the mixed PMI report suggested China’s post-Covid recovery had somewhat lost steam and called for continued policy support. Zhang Zhiwei, the chief economist at Pinpoint Asset Management, added that strong consumer spending was one reason China could notch a 4.5% year-over-year expansion in GDP in Q1. Still, the recovery of domestic demand is not broad-based, and joblessness is high, which will likely keep pressure on the government to continue its supportive fiscal and monetary policies in Q2.
Although the value of new home sales by the 100 most prominent real estate developers rose 31.6% from a year earlier to $81.9bn in April, China’s home sales have only been increased for a third month, indicating that the government measures to support the real estate industry are having a positive effect. Policymakers have expanded support for the sector, including ramping up financial support for developers and lowering mortgage rates, while buying curbs have been eased in many big cities, including Shanghai. Some analysts, such as Bruce Pang, chief economist for Greater China at Jones Lang LaSalle, also pointed to fewer working days in April due to public holidays as one of the factors resulting in the fall in factory activities.
