China’s Economic Recovery From Covid-19 Shows Signs of Slowing
Official gauges across China’s economy fell short of expectations in April, hit in part by semiconductor shortages, suggesting that the economy’s strong pandemic bounceback is starting to lose some momentum more than a year into the recovery.
China’s official purchasing manager’s indexes showed manufacturing activity falling more sharply than expected, dropping to 51.1 in April, according to data released Friday by the National Bureau of Statistics—lower than March’s 51.9 reading and falling short of the 51.6 median forecast expected by economists polled by The Wall Street Journal.
Though the reading remained above the 50 mark that separates expansion from contraction, China’s statistics bureau said global chip shortages, international logistics jams and rising delivery costs have weighed on manufacturers’ operations.
Friday’s official readings also showed continued softness in the service sector—underscoring concerns among economists that domestic spending, a persistent weak point in the recovery, would hold back China’s economy in the coming months.
China’s nonmanufacturing PMI, which includes services and construction activity, fell to 54.9 in April from March’s 56.3 level. The subindex measuring business activity in the service sector fell to 54.4 from March’s 55.2.
The weaker-than-expected readings from across China’s economy come after a year in which the country largely defied expectations to become the only major global economy to grow in pandemic-scarred 2020.
The data, however, wasn’t all downbeat. A separate private gauge of economic activity, also released Friday, showed activity among smaller manufacturers picking up to its highest monthly level this year, supported by strong demand and production.
The Caixin China purchasing managers index rebounded to 51.9 in April, from 50.6 the previous month, according to Caixin Media Co. and market research firm IHS Markit.
That was largely in line with the official manufacturing PMI, whose subindex measuring small manufacturers’ activity bucked the broader trend by showing a pickup in activity in April even as its larger peers retreated.
“While the headline official PMI is surprisingly low, the rebound in small manufacturer PMI sent out a positive signal, suggesting the recovery of small business continued last month,” said ANZ economist Betty Wang.
China’s bigger manufacturers were held back in part by the global chip shortage, which has hit a variety of industries, most notably autos and electronic goods. China’s manufacturing of digital gadgets relies heavily on imports.
Meanwhile, China’s nonmanufacturing sector, seen by officials and economists as the key to sustaining the recovery in the world’s second-largest economy as the once-hot industrial and export sectors cool off, again fell short of expectations in April.
In large part, that may be because of a sharp pullback in construction activity. The official PMI subindex tracking construction dropped to 57.4 in April, from 62.3 in the previous month, a move economists said reflects the impact of tighter regulations and tougher financing for property developers.
More encouraging for policy makers, consumer spending—a key component of Beijing’s attempts to tilt the Chinese economy more toward domestic consumption—appears to be gaining speed after a year in which localized Covid-19 outbreaks suppressed the urge to splurge.
“Residents’ willingness to consume has sharply increased, and market activity has increased,” the statistics bureau said Friday, pointing to strong improvement in the health of hotels, restaurants and entertainment venues.
After a long weekend in early April that topped expectations for domestic travel, analysts are pinning their hopes on the five-day Labor Day holiday that begins Saturday.
During the long holiday, China’s Transport Ministry estimates, travelers will make 265 million trips, on par with the same pre-coronavirus period in 2019.
Trip.com Group Ltd. , operator of China’s largest online travel-booking site, said air-ticket reservations for the holiday are 23% higher than in 2019, despite higher prices.
Even so, Chinese citizens’ willingness to part with their hard-earned yuan will depend in part on the health of the labor market, which continues to look less than robust.
The employment subindexes of both the official manufacturing and nonmanufacturing PMIs fell deeper into contractionary territory in April, Friday’s data showed.
“The slow recovery of China’s labor market will continue to weigh on the nation’s consumer spending,” said Ms. Wang, of ANZ.