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On December 26, when the new Chengdu-Kunming Railway opened, passengers wearing face masks took selfies with women in traditional Yi costumes. The sluggish consumption is one of the difficulties facing the Chinese economy.
On December 31, the China Bureau of Statistics announced that the Manufacturing Purchasing Managers Index (PMI) in December 2022 was 47.0%, which was lower than the median value (48%) predicted by Reuters; a decrease of 1 percentage point from the previous month, It is a new low since March 2020.
The PMI is seen as an economy’s “health checklist” that reflects overall growth or decline in the manufacturing sector. The PMI line is 50%, above 50% means that the manufacturing industry is expanding and developing, otherwise it means recession.
The December PMI is the first official economic data released after the lockdown was lifted. According to Reuters, the surge in the number of infections has caused the manufacturing industry to face temporary labor shortages and more severe supply chain disruptions. According to a Reuters report last week, the Tesla factory in Shanghai was hit by the above-mentioned impact and planned to reduce production capacity.
From the specific data, small and medium-sized enterprises have been more affected – the PMI of large enterprises fell by 0.8% to 48.3%, while small and medium-sized enterprises fell by 1.7 and 0.9 percentage points, 46.4% and 44.7% respectively in the same period. All three are in contraction territory.
The non-manufacturing business activity index released during the same period dropped even more significantly, only 41.6%, down 5.1 percentage points from the previous month. Among them, the construction industry performed better, accounting for 54.4%, which was in the boom range; while the business activity index of the service industry was 39.4%, a decrease of 5.7 percentage points from the previous month.
Zhao Qinghe, a senior statistician at the Service Industry Survey Center of the National Bureau of Statistics, said that China’s manufacturing purchasing managers index fell from the previous month due to the impact of the epidemic and other factors.
According to the agency’s survey, 56.3% of the surveyed manufacturers said that December was greatly affected by the epidemic, a surge of 15.5% from the previous month, but most said they expected the situation to gradually improve.
image source,EPA
A large number of workers infected may affect the operating rate of the manufacturing industry. The picture shows the workshop of an industrial robot manufacturing company in Jiangsu on December 12.
Why pay attention to PMI?
The Purchasing Managers Index (PMI) adopts a questionnaire survey. China’s official survey sample includes 3,000 manufacturing companies and 4,000 non-manufacturing companies.
Respondents evaluated 13 indicators such as production, new orders, new export orders, and orders in hand, and could choose to compare the previous month with an increase, no change, or a decrease. Finally, the PMI index is obtained after weighted calculation of different indicators.
Because of the high correlation between the development trend of the manufacturing industry and GDP, the accuracy of the PMI index on economic forecasts is highly recognized by the financial community and policy makers.
In addition, the survey is conducted monthly and is generally released at the beginning of the month, much earlier than other economic indicators, so it is considered a reliable leading indicator of the current economic situation.
In the year before the epidemic, China’s monthly PMI hovered around 50%, with the highest being 50.5% and the lowest being 49.2%. It was 50% in January 2020, and dropped to 35.7% in February after the outbreak hit. The reason for the sudden drop is that a large number of enterprises have shut down due to the impact of the new crown epidemic.
However, starting from March 2020, the manufacturing PMI has been in the booming range for 18 consecutive months, and will continue to hover around 50% until September 2021. After the closure of Shanghai in April this year, the PMI dropped sharply from 49.5% in March to 47.4%, and then continued to hover around 50%, but since September this year, it has been falling all the way, falling to the current 47% at a rate of 1 percentage point per month.
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After the “opening up”, many service industries have been impacted, but some economists believe that the worst time has passed, and China’s economy will see a strong recovery in the future. The picture shows a playground in Chongqing on December 8.
The road to recovery: both good and bad
After China’s epidemic prevention was “opened up”, the number of infected people surged, which affected the resumption of work in various industries. At the same time, due to fear of infection, many people stayed at home, which also hit the service industry.
Some companies are even unwilling to follow the government’s guidance and abandon the epidemic prevention restrictions. For example, Haidilao, a chain hot pot brand, also requires its employees to undergo nucleic acid testing.
The company’s concerns are not unreasonable. An executive of a large Beijing supermarket said, “More than half of the employees in our mall and hotel are positive.” The executive said that the mall is still open, but has to put The remaining staff members are divided into two groups and go to work in batches.
Capital Economics senior China economist Julian Evans-Pritchard (Julian Evans-Pritchard) believes that China will take quite a long time to adapt to living with the virus, and consumption activities may be between 3 and 6. It will be months before returning to a “similar to normal state”.
“So, in the medium term, even though the ‘zeroing out’ policy shift will benefit most businesses, it will not provide immediate relief (of economic distress) and the next few months will remain very challenging.”
Zhou Hao, chief economist of Guotai Junan International, believes that although the manufacturing PMI is lower than expected, it is actually difficult for analysts to make reasonable forecasts considering the uncertainty brought about by the surge in infections in the past month.
However, he also expressed optimism, “In general, we believe that the worst period of China’s economy has passed, and there will be a strong economic recovery in the future.”
“The weeks leading up to Chinese New Year will remain challenging for the service sector as people don’t want to go out and spend for fear of infection,” said Mark Williams, chief Asia economist at Capital Economics. When you come back from the Lunar New Year holiday, the outlook should be bright — the infection rate will come down, and a large proportion of people will feel that they have some degree of immunity after getting the new crown.”
From the outside, the economic recovery still appears to be in jeopardy. “Most of the factories that I know have received orders for the coming year that are far lower than in previous years.” Cameron Johnson, a partner at supply chain consulting firm Tidalwave Solutions, said that many of the factories he contacted had orders. Only 50% of previous years, some even lower than 20%. “So even though China is opening up, manufacturing is going to slow down because the rest of the world is slowing down. There will be workers in factories, but they don’t have orders.”