The purchasing managers' index for manufacturing, the first time it has crossed the 50 mark since February, the Chinese government's purchasing managers' index, PMI, for manufacturing, rose to 50.2 in June, the first time it has crossed the 50 mark since February, according to the National Bureau of Statistics. Activity is increasing, according to a reading above 50.
The PMI, which includes construction and services industries, jumped to 54.7 in June, compared to 47.8 in May. The index moved back into expansion territory for the first time in four months and was its strongest reading since May 2021.
Julian Evans-Pritchard, senior China economist for Capital Economics, said that the PMIs pointed to a surprisingly rapid recovery in services activity this month after virus restrictions were mostly lifted. He warned that household finances and consumer confidence are fragile because of the weakness in the labor market. He said that this will weigh on any further recovery once the reopening boost fades. Since March, many cities, including mainland China's business hub Shanghai, have been under strict Covid restrictions, which resulted in a sharp contraction in economic activity. The factories were closed and people were confined to their homes, shops and restaurants. Analysts think the Chinese economy will contract in the second quarter, putting the government's annual growth target of 5.5% for 2022 out of reach. Top government officials have been rattled by the signs of an economic slowdown and soaring unemployment, and have moved to loosen Covid restrictions to boost confidence. Workers assemble speakers in an electronics factory in Linquan, Anhui province. In the last few months, the Chinese Communist Party has repeatedly sounded the alarm on rising unemployment, and urged the government to take stronger measures to support business and stabilize growth. On Monday, Li visited a job training center in Beijing and stressed the need to get the economy back on track as soon as possible and to reduce unemployment as quickly as possible. Many cities lifted their lock downs earlier this month or relaxed Covid-related curbs, including Shanghai. The National Health Commission said on Tuesday that China will cut the quarantine period for international travelers by more than half, a major shift in the country's Covid policy. Analysts fear that China may stick to strict Covid restrictions for a while. On Wednesday, China's President Xi Jinping reaffirmed his commitment to zero-Covid policy during a visit to Wuhan, the epicenter of the coronavirus outbreak. According to state-owned news agency Xinhua, Xi said he would rather sacrifice a little economic growth than harm people's health. The President and Chief Economist at Pinpoint Asset Management, Zhiwei Zhang, said the recent surge in China's economic activity would be sustained into July as further relaxation of mobility restrictions take place. He said that Xi's adherence to the zero-Covid stance would keep a lid on growth. China is sticking to the zero Covid policy stance. Economic growth will probably stay below its potential before the policy is relaxed, according to Zhang.