Whilst economies around the world are still on their knees, China seems to have picked itself back up again, after emerging from the worst of Covid-19’s destruction across the country.
In battling the virus throughout February, the Chinese economy took a huge hit. Strict quarantine measures imposed across the country by the central government, effectively put 1.4 billion people in lockdown, resulting in a massive decline in manufacturing output.
Factory activity in China is released by the National Bureau of Statistics (NBS) each month using a measurement called the Purchasing Managers Index (PMI). This is essentially a number, which summarises the results of a survey which is sent out to over 700 manufacturing enterprises all over China.
The survey assesses the purchasing activities and supply situations of the manufacturing sector and the results give a strong indication of how factory activity compares to the month before. A PMI value above 50 indicates growth in manufacturing activity, where a value below 50 indicates a decline in output.
In February this year, as the Chinese economy was devasted by the spread of Covid-19, a PMI of 35.7 was recorded, the worst decline in manufacturing since the measurement was put into use.
With many factories still closed throughout most of March, and many parts of the country still in lockdown, economists did not expect such a strong rebound this month. PMI for March however came in at 52, which indicates that manufacturing activity expanded month-on-month and the recovery has begun.
The results from this month’s PMI are certainly a reason for optimism in the Chinese economy, but should not be taken for granted. Output may be on the way to returning to pre-pandemic levels, but the problem Chinese manufacturers will now face is extremely weak global demand.
The coronavirus is now spreading at an unprecedented rate throughout the US and Europe, both of which are significant export markets for Chinese goods. Whilst lockdowns continue in the rest of the world and foreign businesses reduce their own production levels, the demand for Chinese exports is likely to remain low.
For now, the situation remains volatile, and in the age of a highly globalised world, a recovery in China does not mean they are free from the havoc caused by Covid-19. Only when foreign economies return to normality once again, will markets reopen and give the Chinese manufacturing sector the customers they need to sell to.
THINK LIKE AN ECONOMIST!
Q1. Explain what the PMI indicates.
Q2. Analyse the reasons why China’s PMI for February was the worst level ever recorded.
Q3. To what extent can the Chinese manufacturing economy now recover?
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