China continues recovery as factory output rises

The rate of new order growth was the steepest recorded since the start of 2011

A worker cuts an oil pipe at a factory in Qingdao in China. The world's second largest economy continued to recover from the impact of the coronavirus pandemic. AFP

China, the world's second-largest economy, continued to recover from the impact of the coronavirus pandemic with factories reporting a rise in production in September, on the back of a strong rebound in export sales.

The Caixin/Markit Manufacturing Purchasing Managers' Index(PMI), a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, edged down slightly to 53 in September from 53.1 in August.

A reading above 50 indicates expansion, while one below, points to a contraction.

“The recovery in manufacturing has maintained its momentum in the wake of the Covid-19 epidemic, with both the supply and demand surging,” Wang Zhe, senior economist at Caixin Insight Group, said. “The sub-index of total new orders rose to the highest since January 2011, helped by sharply rebounding overseas demand. The gauge for new export orders climbed to the highest in three years.”

China was the first country to report the coronavirus in December last year. However, strict movement restrictions introduced by Beijing helped contain the outbreak in the country. As of Wednesday, the number of infections in China reached 85,403 with 4,634 deaths, according to Worldometer. Total recoveries stand at 80,578. Currently, there are more than 33 million infections globally and over 1 million deaths.

“Increased activity at home and abroad was reportedly driven by the easing of lockdown measures as the [manufacturing] sector continued to recover from the Covid-19 pandemic. Furthermore, employment stabilised in September, which ended an eight-month period of job shedding,” the report said.

The report also said new business orders added further pressure on operating capacities at Chinese factories, with backlogs of work rising.

Operating margins, on the other hand, remained under pressure, as firms “reported a further marked increase in input costs". However, companies did not increase prices due to greater market competition.

“To sum up, the economic recovery has picked up its pace after the epidemic, with both the supply and demand improving," Mr Zhe said. “The sharp rise in overseas demand has complemented the domestic market. Manufacturers remained confident about the economy for the next 12 months and they were no longer reluctant to add to their inventories.”

The strength of the manufacturing sector “will take some of the pressure off policymakers going forward. However, the job market remains worrisome, as the improvement in employment relies on a longer-term economic recovery and a more stable external environment”.

The world economy is set to slide into its deepest recession since the Great Depression, with the International Monetary Fund projecting a 4.9 per cent contraction this year and a sluggish recovery in 2021.

As the infection rate abates in certain parts of the world, a number of countries are easing lockdown measures to boost economic activity. Australia, which had imposed movement restrictions following a sudden surge in infections, relaxed restrictions to allow limited gatherings earlier this week. Primary school students are expected to return to school from October, according to media reports.