China's manufacturing activity grows at fastest pace in 13 months

China's manufacturing activity grows at fastest pace in 13 months

China's manufacturing activity increased at its fastest pace in 13 months in June, buoyed by a rebound in output, as the lifting of COVID lockdowns sent factories racing to meet recovering demand, a private sector poll showed on Friday.

The Caixin Markit ManufacturingPurchasing Managers' Index PMI rose to 51.7 in June, which was the first expansion in four months, from 48.1 in the previous month. The 50 point index mark separates growth from contraction on a monthly basis.

The recovery suggested in the Caixin survey, which focused on more export-oriented and small firms in coastal regions, was more convincing than the findings in an official survey.

Economic activity has sped up in June due to various COVID lockdowns that have been rolled back in June as COVID 19 cases fell, with a range of support measures unveiled by the State Council in late May to stabilise growth.

A sub-index for output bounced to the highest level since November 2020, while new orders, boosted by the first increase in export orders in about a year, snapped three months of decline and posted the fastest growth in four months.

In June, delivery times for suppliers were stabilised after easing supply chain snags, after worsening for the past two years.

The factories remained cautious in terms of hiring more staff despite the strong rebound, with employment falling for the third month in a row.

The post-pandemic era remained the focus of the current economy but its base was far from strong, said Wang Zhe, senior economist at Caixin Insight Group.

A weak labor market has dampered the demand recovery because of the deteriorating household income and expectations. Supportive policies should be applied to employees, gig workers and low-income groups impacted by the outbreaks. China's economy has started to chart a recovery path out of the supply shocks caused by strict lockdowns, but headwinds persist, including record high jobless rate in big cities, soft consumer spending and fear of any recurring waves of infections.

Analysts expect further improvement in the third quarter, although the official GDP target of around 5.5% for this year will be hard to achieve unless the government abandons the zero-COVID strategy.

President Xi Jinping defended the zero-COVID policy on Tuesday, saying that China is willing to accept some temporary impact on economic development over harm to people's health.