China’s manufacturing activity unexpectedly contracted in April while the expansion of services slowed, in the latest evidence of the challenges facing Beijing amid an uneven post-Covid economic recovery. The official manufacturing purchasing managers’ index (PMI) fell below the 50-point mark separating monthly expansion and contraction to 49.2 in April from 51.9 in March, hitting the lowest level since China’s post-pandemic reopening, according to the National Bureau of Statistics (NBS). It underperformed the market estimate of 51.5, which came after China posted a surprise economic growth of 4.5% in the first quarter. A subindex to measure new orders dipped to 48.8 from 53.6, indicating decline in market demand and acting as a major contributor to the fall in the headline indicator. Another index of new export orders also fell into contraction – to 47.6 from last month’s 50.4 – its lowest level in three months.
The fall in April was mainly due to “insufficient market demand and the high base effect of a rapid recovery in manufacturing in the first quarter”, according to Zhao Qinghe, Senior Economist at the NBS. Production in the chemical fibre, ferrous metal mining and processing sectors have slowed due to weak market demand, while special equipment and electrical and mechanical equipment sectors have continued to expand. Turbulence in commodity prices dragged down manufacturers’ purchase of raw materials. Expectations were lower but still remained in the expansion range at 54.7, compared to 55.5 in the previous month. This indicated “the stable confidence of enterprises in the growth of the market”, Zhao said. The PMI for the services sector, despite falling slightly to 56.4 in April from 58.2 in March, remained the second highest reading for the year so far. Beijing said economic growth was better than expected and operations had got off to a good start, but also noted there are risks threatening the sustainability of the recovery. “The current economic improvement is mainly owing to recovery-driven growth, but the internal driving force is not strong, and demand is still insufficient,” according to a statement issued after a meeting of the Communist Party's Politburo.
Zhang Zhiwei, Chief Economist with Pinpoint Asset Management in Shanghai, said the data indicated recovery in domestic demand was not broad-based. “Mobility indicators suggest the May Day holiday is likely to have hit a record in terms of number of travelers. Yet property market activities still seem muted, and unemployment remains high,” Zhang said. “These mixed signals are likely to keep the pressure on the government to continue its supportive fiscal and monetary policies in the second quarter,” the South China Morning Post reports.
