China’s economic activity expands for first time in months as Covid ‘exit wave’ ends News84Media Business

Hong Kong

Economic activity in China has picked up for the first time in four months as disruptions caused by the abrupt end of its zero-Covid policy appear to be easing.

The official Manufacturing Purchasing Managers’ Index (PMI), which measures activity in factories, rose to 50.1 in January from 47 in December, according to the National Bureau of Statistics.

It’s the first time since September that the gauge has surpassed the 50-point mark. A reading above 50 indicates expansion, while anything below indicates contraction.

The official non-manufacturing PMI, which tracks activity in the services and construction sectors, rose to 54.4 in January from 41.6 in December, also marking its first expansion in four months.

This is a sign that China’s Covid “exit wave” is coming to an end, analysts at Nomura said in a research report.

“Looking ahead to February, we expect both manufacturing and non-manufacturing PMIs to continue to rise as more people adjust to living with Covid,” they said on Tuesday, adding that production activity will also continue to recover after the Lunar New Year holidays.

The official PMI survey mainly includes larger companies and state-owned companies. The Caixin PMI survey, to be released later this week, focuses on small and medium-sized businesses.

Tourists enjoy hoarfrost-covered trees along the Songhua River in China's Jilin Province, January 30, 2023.

China scrapped most of its pandemic restrictions in early December, effectively ending its three-year zero-Covid policy. But the abrupt change in policy caught the public off guard and led to a rapid spread of infections.

The Covid surge hit factories and hypermarkets as people were forced indoors and factories had to close because fewer people were working. But it seems the mess may be over.

“The official PMIs add to evidence of a rapid rebound in economic activity this month as disruptions from the reopening wave eased,” said Sheana Yue, China economist at Capital Economics.

All components of the indices have improved this month.

The clearest recovery has been in the services sector, with that metric rising to 54 in January from a record low of 39.4 in December, as a huge spike in Covid infections meant people were mostly staying at home.

“The strong recovery was mainly due to the release of pent-up demand in personal services, including tourism, hospitality and entertainment, which have been hardest hit by the pandemic over the past three years,” Nomura analysts said. “People flocked to scenic spots, watched fireworks shows, and crowded into restaurants and hotels.”

A total of 308 million trips were made by travelers within China during the Lunar New Year holiday, up 23% from the same period last year, according to data released last week by the Ministry of Culture and Tourism. It was also close to pre-pandemic levels, which is 89% of 2019 levels.

“With zero-COVID in the rear-view mirror, the recovery should remain robust in the short-term,” Yue said.