China PMI and Economic Restart
The National Bureau of Statistics of China releases every month the official Purchasing Managers’ Index for Manufacturing and Non-manufacturing sectors.
Purchasing Managers Index (PMI) is an index summarized and compiled through the results of the monthly survey of enterprises purchasing managers. It is one of the leading indices adopted by international society to monitor and forecast macroeconomic trends.
The threshold of PMI is usually using 50 percent as the cut-off point for economic performance. If PMI above 50 percent, it reflects the overall economy is expanding; if less than 50 percent, it reflects the overall economy is in recession.
The information about the PMI released in February and in March showcases how the virus outbreak has affected the different industries operating in China.
In February 2020, China’s PMI dropped significantly due to the outbreak of COVID-19 and the related stop of business activities to control the epidemic. In particular, the manufacturing PMI plummeted from 50 percent to 35.7 percent, down by 14.3 points, while the non-manufacturing PMI fell even more significantly, from 54.1 percent to 29.6 percent, a decrease of 24.5 points.
The latest release highlights the immediate effects of the economic restart, with both manufacturing and non-manufacturing PMI rebounding to the value pre-COVID: the manufacturing PMI bounced back to 52 percent, increasing by 16.3 points from the previous months, and the non-manufacturing PMI rebounded to 52.3 percent.
The trend of the China PMI shows that different industries have been differently affected by the pandemic outbreak, with catering, accommodation, and service industries significantly hit, and the ability of the Chinese economy to recover with the resumption of the business activities promptly.
A detailed review of the sub-indices compositing PMI can provide additional insights about the recovery of the Chinese economy.
The manufacturing PMI consists of five sub-indices, which are production level, new orders, raw materials inventory, employed persons, and supplier’s delivery time.
The new orders index reached 52 percent in March, increasing by 22.7 points, and shows how the market demand in the manufacturing sectors is starting to recover and has grown from the previous month.
The production index was 54.1 percent, significantly increased by 26.3 points, indicates that manufacturing output increased significantly compared to February.
The employed persons index that was 50.9 percent in March highlights the increasing number of manufacturing enterprises and employees that resumed the activities.
The raw materials inventory and the supplier delivery time were the only two sub-indices under 50 percent, even if they increased by 15.1 percent and 16.1 percent, respectively. The figures show that the inventory of raw materials declined at a narrower pace and that the delivery time from suppliers has slightly improved.
The different indices have shown that although the manufacturing business activities have increased in March, the industry is still affected by logistical factors restraining the companies from receiving or distributing raw materials.
The overall non-manufacturing indices related to new orders, input prices, sale prices, and employment have all increased in March. Even if they are all below 50 percentage points, the significant increase of these sub-indices expresses how the industries are starting to control the effects of the virus outbreak. In particular, the new orders index was 49.2 in March, up by 22.7 points from February, indicating that the pace of decline of market demands in the non-manufacturing industries slowed down.
The higher confidence of Chinese enterprises operating in non-manufacturing sectors is well highlighted by the business activities expectation index, which reached 57.3 percent, increased by 17.1 compared to February.
The Chinese economy had been greatly affected by the COVID-19, with a closure of the non-essential businesses in the country in the period immediately after the New Year festival. However, central and local authorities have worked restlessly in order to contain the potential negative effects, by implementing a series of supporting measures, with the scope to reduce the tax and financial burden on the enterprises and to maintain stable the workforce during these hard months.