Asian factories have been busy, a plus for the global economy

Manufacturing data from China and Japan show growing demand for exports, but jobs remain under pressure.

China factory [Bloomberg]
Even though China's factories are recovering strongly from coronavirus lockdowns, many manufacturers are not hiring as many people as they did before the pandemic, new data show [File: Qilai Shen/Bloomberg]

China’s factory activity extended its solid growth in September, two surveys showed, as the country’s crucial exports engine revved up on improving overseas demand and underlined a steady economic recovery from the coronavirus shock.

The improvements in China also drove up demand for Japanese goods, boosting manufacturing there.

China’s official manufacturing Purchasing Manager’s Index (PMI) rose to 51.5 in September from 51.0 in August, according to data from the National Bureau of Statistics (NBS) on Wednesday, remaining above the 50-point mark that separates growth from contraction for the seventh month.

Analysts had expected it to pick up slightly to 51.2.

A private survey, also released on the day, painted a similar picture of the manufacturing sector gaining momentum backed by stronger overseas demand.

China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, stimulus-driven infrastructure expansion and surprisingly resilient exports propel a recovery.

China manufacturing PMI chart [Bloomberg]

The official PMI, which largely focuses on big and state-owned firms, also showed the sub-index for new export orders stood at 50.8 in September, improving from 49.1 a month earlier and snapping eight months of declines.

Japan gets a lift from China

In Japan, factory output rose for the third straight month in August.

Demand among Japan’s global trading partners, and especially China, has rebounded from the lows seen earlier this year when the virus crisis forced governments to impose lockdowns that hurt global trade and production.

Official data released on Wednesday showed factory output increased by 1.7 percent in August from the previous month, boosted by rebounding production of cars and car parts as well as iron, steel and non-ferrous metals.

The signs of stronger overseas demand were also highlighted in China’s Caixin/Markit Manufacturing PMI, which focuses more on small and export-oriented firms. Its gauge for new export orders rose at the fastest pace in more than three years.

Recently, economic indicators ranging from trade to producer prices have all suggested a further pick-up in the industrial sector. Profits at China’s industrial firms extended robust growth in August to the fourth month, official data showed on Sunday.

Domestic demand also shows signs of broadening, with industrial output accelerating the most in eight months in August and retail sales growing for the first time this year.

Adding to the demand recovery from the coronavirus-induced slump, the official PMI showed activity in China’s services sector expanded at a faster pace in September.

“We are entering a period of above-trend growth, which should help absorb the remaining slack in the labour market and allow for some policy tightening next year,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note to clients.

Challenges ahead

Yet, even as China emerges from the pandemic in fairly stable shape, many expect the road ahead to be bumpy.

China’s economy, which grew 3.2 percent in the second quarter year-on-year, is set to expand 2.2 percent this year – the weakest in more than 30 years.

A sub-index for employment in the official PMI improved slightly but remained in contractionary territory. It stood at 49.6 in September from 49.4 the month before, indicating the pressure on jobs and keeping policymakers primed for more support measures.

“The continued job market pressure points to a need for policymakers to stay accommodative, particularly for the private sector which has lagged behind in the recovery and accounts for more than 85 percent of urban employment,” Erin Xin, Greater China economist at HSBC, said in a note sent to Al Jazeera.

Moreover, a growing rift between China and the United States over trade, technology and a range of other issues have analysts warning about risks to the outlook. Tensions between the two countries are expected to escalate further ahead of the US presidential elections in November, which some China observers say could undercut the recovery.

“Although overall manufacturing demand has improved, the industry has recovered unevenly,” said Zhao Qinghe, an official at the NBS, in comments accompanying the data, noting weaknesses in demand for clothing and wood processing manufacturing in particular.

“In addition, the global epidemic has not yet been fully and effectively controlled, and there are still uncertain factors in China’s imports and exports.”

Source: Al Jazeera and news agencies