China is gradually returning to life after months of severe restrictions imposed to contain the outbreak of the “Coffed 19” epidemic, which forced the authorities to put millions of people in isolation and caused an almost complete cessation of 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 PMI, on Tuesday, exceeded expectations to 52 points for the month of March, according to the National Bureau of Statistics. The non-manufacturing PMI is currently 52.3, exceeding analyst expectations.
The PMI is an economic indicator that provides an accurate overview of operating conditions and shows working and operating conditions in the non-oil private sector.
The index is based on 5 main pillars: new orders, inventory and production levels, supplier delivery volume, and employment and work environment.
This exceeds the level recorded in the previous month, which amounted to 35.7 and exceeds the expectations of a study published by “Bloomberg” with a capacity of 44.8. Each index above the 50 threshold is considered an expansion in the volume of purchases.
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 economic operations in China have returned to normal levels.
Although the PMI rebound in the industrial sector, “there is still relatively great pressure on enterprise production and operations,” said Zhao Qinghe, chief expert of the National Bureau of Statistics.
Experts expect the index to retreat to enter the deflation zone next month.
The World Bank is rooted in a slower rate of economic growth
And the World Bank warned, on Tuesday, that the repercussions of the global economy could cause the growth of the Chinese economy to decline to 2.3% this year, compared to 6.1% in 2019.
A Chinese central bank official told the media that he recommends that Beijing not set a growth target this year given the massive uncertainties it faces.
The official, “Economic Daily”, quoted a member of the People’s Bank of China Monetary Policy Committee, Ma Jun, that it will be difficult to reach 6% growth, adding that setting a goal can 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. He added: “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,” saying that “any recovery after February … is taken for granted.”
The spread of the “Covid 19” epidemic had serious consequences for production and corporate work and caused near paralysis of 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.
Anticipated shock about “order volume”
China is likely to see a “sudden shock to the volume of demand” in April, which may be a more important indicator, according to Tommy Shi, 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% 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 arose, China launched costly mega projects, 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 pandemic has imposed 19 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.