China manufacturing PMI disappoints in Jan despite COVID reopening - Caixin

© Reuters.

By Ambar Warrick

Investing.com -- Chinese manufacturing activity shrank in January, a private survey showed on Wednesday, painting a less rosy picture of the economy than official figures released earlier this week, as the country reemerges from three years of anti-COVID lockdowns.

The Caixin manufacturing purchasing managers index (PMI) was 49.2 in January, higher than December’s reading of 49.0, but still below estimates of 49.5. A reading below 50 indicates contraction.

The data contrasted a government reading released on Tuesday, which showed that China’s manufacturing PMI was back in expansion territory after three months of declines.

The Caixin survey differs from the government survey in its scope, wherein the government survey targets larger, state-run enterprises, while Caixin focuses on small-scale private businesses.

Still, the Caixin survey noted that manufacturing activity had improved from the prior month after the easing of most COVID-19 containment measures. But output still fell as the pandemic dented customer demand and also resulted in higher staff absences.

While China marked a clear pivot away from its zero-COVID policy in January, the country is still grappling with its worst yet COVID-19 outbreak.

External demand for Chinese goods also remains weak due to slowing economic growth across the globe, the Caixin survey noted. But businesses turned more optimistic over the future, as local supply chains stabilized and activity drew closer to normalcy amid easing anti-COVID restrictions.

“Overall, the pandemic continued to take a toll on the economy in January. Supply and demand weakened, overseas demand was sluggish, employment declined, and logistics hadn’t fully recovered... But optimism in the sector continued to improve as businesses expected a post-Covid economic recovery,” Wang Zhe, Senior Economist at Caixin Insight Group said in a note.

China relaxed most anti-COVID measures and reopened its borders after three years of intermittent lockdowns ground economic activity to a halt. The government also recently reiterated that it plans to shore up local economic growth with more spending measures.

But the country still faces some headwinds in the near-term, which have cast doubts over the timing of a bigger economic recovery. COVID-19 cases are still increasing at close to record-high levels, which could potentially disrupt activity.

Analysts also warned that global economic headwinds, including a potential U.S. recession and increased trade restrictions on Chinese companies, could hamper a potential recovery this year.