Chinese manufacturing activity witnessed sudden growth in March with the start of the business cycle, following a prolonged closure period, but analysts believe that the economy remains fraught with challenges, as the new Corona virus pays a blow to the volume of external demand added to the World Bank warning of the possibility of stopping growth.China is gradually returning to life after months of severe restrictions imposed with the aim of containing the outbreak of the deadly Covid-19 epidemic that has forced authorities to put millions of people in homelessness and caused an almost total halt to economic activity.
As a result of the strict measures, industrial activity declined to its lowest level in February, while industrial production contracted for the first time in 30 years after the authorities closed shops and stores.
The purchasing managers’ index on Tuesday recorded a level that exceeded expectations to reach 52 points for the month of March, according to the National Bureau of Statistics. This exceeds the level recorded in the previous month, which amounted to 35.7 and exceeds the expectations of a study published by Bloomberg and its capacity by 44.8. Each index above the 50 threshold is considered an expansion.
The statistics office said that the number “indicates that more than half of the companies surveyed witnessed an improvement in the resumption of business and production compared to the previous month.” However, he added, this does not mean that the economic operations in our country have returned to their normal levels.
The non-manufacturing PMI is currently 52.3, exceeding analyst expectations.
Despite the recovery in the manufacturing PMI, there is still relatively great pressure on enterprise production and operations, “said Zhao Qinghe, chief statistician of the National Bureau of Statistics.
Experts expect the index to retreat to enter the deflation zone next month.
The World Bank warned on Tuesday that the global economic fallout could cause the Chinese economy to grow to 2.3 percent this year, compared to 6.1 percent in 2019.
A Chinese central bank official told media that he recommends that Beijing not set a growth target this year given the massive uncertainties it faces.
“It will be difficult to reach 6 percent growth,” Ma Jun, a member of the People’s Monetary Policy Committee of the People’s Bank of China, was quoted as saying by the official Economic Daily, adding that setting a goal could limit formal measures to deal with the consequences of the virus.
“We shouldn’t expect much from this strong recovery,” warned Tommy Xi, director of the Greater China Research Center at OBC.
“February was a bad month for China … (The manufacturers) witnessed a major obstruction in supplies due to the closure of factories and restrictions on movement,” he added, adding that “any recovery after February … is taken for granted.”
The Covid-19 pandemic had serious consequences for production and corporate work, and caused near paralysis for China in February, when hundreds of millions of Chinese stayed home amid strict quarantine measures to combat the virus.
The actions taken have caused severe disruption in transportation and have hindered the supply of spare parts, components and raw materials.
The country has since resumed economic activity in light of a severe slowdown in the transmission and a gradual lifting of domestic quarantine, but the economic consequences are expected to continue for a long time.
China is likely to see “a sudden shock to the volume of demand” in April, which may be a more important indicator, according to Xi, at a time when global demand is dwindling and factories abroad are suspending operations.
The chief economist at ING Banking Group, Iris Bang, said that new export orders were still below the 50-point threshold in March in addition to imports, indicating that domestic demand had recovered more quickly than external demand.
“I think people have forgotten … that even if the new Corona virus recedes in the United States, there may be a great opportunity for the return of trade and technology warfare,” she said, referring to the ongoing trade tension between China and the United States.
Analysts at Nomura Center, Luo Ting, Wang Lisheng and Wangjing, said in a note before the PMI data was released that they expected “a significant negative growth in almost all activity data in March, given the slow pace of corporate recovery and the decline in external demand.”
The last time China’s PMI crossed the 52.0 percent threshold was in September 2017 before the start of the trade dispute.
The length of the vulnerability this time depends on the speed with which countries can overcome the global epidemic, according to economists.
Unlike the official response to the 2008-2009 financial crisis, Chinese leaders seem to rule out this time the adoption of a massive economic recovery plan targeting infrastructure.
When the global financial crisis erupted, China launched costly megaprojects, often with little return, and had severe consequences for local government finances. However, since then, the Chinese authorities have prioritized debt reduction
“The consequences for the Chinese economy depend mainly on the development of the global epidemic in the United States and Europe,” said counselor Ma Jun.
The Covid-19 pandemic has imposed domestic isolation on more than a third of the world’s population, and economists expect that will be followed by the largest recession in recent history.