China factories bounced back in March, but activity remains weak

New private-sector survey shows total orders placed with manufacturers fell for second month.

China factory coronavirus
Chinese factory activity staged a rebound in March, but many overseas orders are being scrapped as the coronavirus spreads worldwide [File: Aly Song/Reuters]

China’s factory activity improved in March after plunging a month earlier, a private-sector survey showed on Wednesday, but the bare minimal growth highlighted the intense pressure facing businesses as the global coronavirus pandemic shuts down many countries.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 last month, from February’s record low of 40.3, and just a notch above the 50-mark that separates growth from contraction.

Analysts had expected it to rise to 45.5.

The findings, which focus mostly on small and export-oriented businesses, lagged an official survey released on Tuesday, which showed factory activity expanded at a faster pace on a month-on-month basis.

After widespread factory closures and travel restrictions imposed by Beijing to contain the spread of the coronavirus that has killed more than 3,000 in the country, businesses in China have reopened and life for millions of people has started to slowly return to normal.

But as Beijing guards against a second wave of infections from abroad, the pace of business resumptions has been slow. The rapid spread of the virus across hundreds of countries has led to unprecedented lockdowns, bringing the global economy to a shuddering halt and leaving China vulnerable to a sharp economic slump.

Economists are already forecasting a steep contraction in China’s first-quarter gross domestic product (GDP), with some expecting a year-on-year slump of 9 percent or more – the first such contraction in three decades. Investment bank ANZ has also raised the prospect of a recession in China, forecasting second-quarter GDP to contract by between 0.4 percent and 2.1 percent year-on-year, depending on the evolution of the pandemic.

“To sum up, the manufacturing sector was under double pressure in March: business resumption was insufficient; and worsening external demand and soft domestic consumer demand restricted production from expanding further,” said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, in a note accompanying the data release.

A sub-index for production rose to 50.6, from February’s record drop of 28.6, as more factories reopened amid the dwindling number of locally transmitted infections.

But demand remained weak, with the total new orders placed with Chinese manufacturers falling for the second month, and a number of respondents reported that firms have delayed or cancelled orders due to the pandemic.

A gauge for new export orders was still way below levels seen before the outbreak.

Reuters News Agency reported that Chinese exporters are seeing overseas orders being scrapped as the sharp worldwide spike in coronavirus infections and deaths has forced many of the nation’s trading partners to slow or suspend production. 

Factories shedding jobs

Some of the exporters have let workers go and warned about possible factory closures in the not too distant future.

Wednesday’s survey showed that manufacturers further reduced headcounts in March, although the rate of decline eased from a month earlier, with respondents linking the fall to a combination of voluntary redundancies and efforts to cut costs.

The coronavirus outbreak also continued to strain supply chains in March, highlighted by a further sharp deterioration in vendor performance. Average lead times for inputs increased at the second-quickest rate in just over 12 years amid reports of reduced vendor capacity and material shortages.

Chinese manufacturers cut their selling prices again in March to boost sales, with the rate of discounting the quickest in seven months.

On the bright side, government stimulus measures helped to buoy the survey’s manufacturing confidence to elevated levels.

The ruling Communist Party’s Politburo said on Friday it would step up macroeconomic policy measures to revive activity. Beijing is implementing $344bn of mainly fiscal stimulus measures.

The People’s Bank of China unexpectedly cut the rate on reverse repurchase agreements – in which the central bank buys government bonds from investors in financial markets and sells them back, usually within 24 hours – by 0.2 of a percentage point on Monday, the largest such reduction in nearly five years, to shore up the economy.

Source: Reuters