Chinese factories’ COVID comeback defies the global downturn

In July, Chinese factories reported their fastest expansion in nearly eight years.

On Monday, the Chinese media outlet Caixin, in partnership with the global consulting firm IHS Markit, published a survey of Chinese manufacturers showing that output at Chinese factories is growing even as the global economy endures a downturn amid the pandemic.

Caixin and IHS Markit track manufacturing performance through the Purchasing Managers’ Index (PMI), in which a number above 50 indicates growth in comparison to the previous month; a number below 50 means contraction. In July, China posted a 52.8 PMI, its highest since January 2013.

The July PMI shows that China’s “manufacturing sector continued to expand amid the ongoing economic recovery,” Wang Zhe, senior economist at Caixin Insight Group, said in the report. He explained that “flare-ups of the epidemic in some regions did not hurt the improving trend of the manufacturing economy, which continued to recover as more epidemic control measures were lifted.”

Caixin and IHS Markit’s private survey painted a more bullish portrait of China’s manufacturing sector than the Chinese government, which reported a July PMI of 51.1 in official numbers on Friday.  

Caixin and IHS Markit said companies they surveyed attributed July’s growth to rising consumer demand in China. Manufacturers are still grappling with sluggish global demand for goods as the pandemic rages beyond China’s borders. The report found that Chinese manufacturers’ new export orders fell for the seventh consecutive month, which led to a small contraction in overall employment in the sector.

“We still need to pay attention to the weakness in both employment and overseas demand,” Wang said in the report.

The manufacturing numbers align with projections for China’s overall economic prospects that the World Bank published last week.

The World Bank predicted that China’s 2020 GDP growth would clock in at 1.6%, which would mark the largest slowdown in China’s economy since 1976. The bank said that while China’s manufacturing sector and domestic economy is rebounding, external demand remains “fragile” and will constrain the economy this year.

However, the World Bank expects China’s economy to grow by 7.9% in 2021 as external demand rises. The rate would represent the fastest growth for China’s economy in nine years.

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