Chinese factory activity shows surprise growth
By Sean Farrell
Date: Tuesday 31 Mar 2020
(Sharecast News) - China's official measure of manufacturing activity rebounded to show surprise growth in March as the coronavirus crisis appeared to ebb in the country where it started.
Government figures showed the manufacturing purchasing managers' index (PMI) rose to 52.0 from a record low of 35.7 recorded in February. Economists had on average expected an improvement to 45 but with activity remaining below the score of 50 that separates growth from shrinkage.
The result for March "reflects that more than half of the surveyed enterprises have resumed work and resumed production, better than last month, but it does not mean that China's economic operation has returned to normal," China's National Bureau of Statistics said.
"This was a much better than expected outcome, which corresponds with recent official optimism about recovery and reluctance to offer major stimulus to the economy," Mitul Kotecha, senior emerging markets strategist at TD Securities, said.
Kotecha said the good news was likely to be fleeting because the rest of the world has closed down as China has reopened, leaving Chinese factories without a market for their goods.
"Gains are simply not likely to last," Kotecha said. "Trade with major economies is likely to drop off a cliff as G10 economies shut up shop. Without a demand side pull, it's hard to see how China's supply side opening can be sufficient to sustain manufacturing expansion."
China's central bank made a surprise cut to the rate on reverse repurchase agreements with banks on Monday to cut borrowing costs for businesses and increase the supply of money. The move suggested businesses in the world's second-biggest economy were struggling to survive the coronavirus crisis.
Chinese authorities will also have to balance the benefits of reopening the economy with the risk of a second wave of Covid-19 infections as the country's extreme lockdown eases. Some scientists have said confining people to their homes suppresses but does not quash the virus.
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