China factory activity unexpectedly cooled in April

BEIJING (Reuters) – China’s manufacturing activity contracted unexpectedly in April, official data showed on Sunday, piling pressure on policymakers seeking to boost an economy struggling for a post-coronavirus recovery amid slumping global demand and persistent property weakness.

The official manufacturing purchasing managers’ index (PMI) fell to 49.2 from 51.9 in March, according to data from the National Bureau of Statistics, below the 50-point mark that separates expansion and contraction in activity on a monthly basis.

That came in below the forecast of 51.4 that economists had tipped in a Reuters poll, and was the first contraction since December, when the official manufacturing PMI stood at 47.0.

The world’s second-largest economy grew faster than expected in the first quarter thanks to strong consumption of services, but factory output slowed amid weak global growth. Slowing prices and rising bank savings raise doubts about demand.

The Politburo, the ruling Communist Party’s highest decision-making body, on Friday stressed that restoring and expanding demand is the key to a lasting recovery and warned that the current improvement is mainly reformist “with weak momentum and insufficient demand.”

Zhao Qinghe, chief statistician of the National Bureau of Statistics, said that “lack of market demand and high base effect from the rapid recovery in manufacturing in the first quarter” were among the factors that led to the contraction in April.

The PMI showed new export orders falling to 47.6 from 50.4 in March.

The manufacturing sector, which employs about 18% of China’s workforce, remains under pressure due to sluggish global demand. Some exporters told Reuters at the country’s largest trade fair that they had frozen investments and some cut labor costs in response.

To boost trade and employment, the government last week unveiled plans that include subsidizing car exports, facilitating visas for businessmen abroad and offering subsidies to companies that hire university graduates.

Confidence in the real estate sector, which for years has been a mainstay of Chinese growth, remains fragile. Multiple crises since mid-2020 have included developers defaulting on debts and halting construction of previously sold housing projects.

While policy support measures have helped improve conditions in the industry, pockets of weakness remain and a full recovery appears elusive.

Despite recent strength in consumption, the non-manufacturing PMI fell to 56.4 from 58.2 in March.

Data this month showed retail sales growth accelerated in March to a two-year high, but that was far from a low base and economists are cautious about sustaining that strength.

The composite PMI, which includes both manufacturing and non-manufacturing activity, fell to 54.4 from 57.0.

said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

(Reporting by Elaine Chang, Roxanne Liu, and Ryan Wu) Editing by Shri Navaratnam and William Mallard

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