Measures of Chinese Economic Activity Signal Widening Recovery -- 2nd Update

11/30/2020 | 05:54am

By Jonathan Cheng

BEIJING--Gauges of China's manufacturing and nonmanufacturing activity climbed to their highest levels in three and eight years, respectively, signaling a broadening recovery in the world's second-largest economy nearly a year after the coronavirus began its spread.

The official manufacturing purchasing managers index, a key measure of factory activity, rose to 52.1 in November from 51.4 in October, according to data released Monday by the National Bureau of Statistics. The reading is the highest since September 2017 and topped economists' expectations for the index to edge up to 51.5 this month.

Meanwhile, China's nonmanufacturing PMI, which includes services and construction activity, rose in November to 56.4, its highest level since June 2012, from a previous reading of 56.2 in October, the statistics bureau said.

China's industrial sector has led the nation's economic recovery since the second quarter of the year, and the official manufacturing PMI has remained above the 50 mark, which separates month-to-month activity expansion from contraction, since March. Now, with the coronavirus staying broadly under control within China's borders, life is returning to normal in there, which has helped the other major segment of the economy--services--to catch up.

"A lot of restaurants are already full with long lines at the door. People are consuming and factories are already at their full capacity," said Zhu Chaoping, a Shanghai-based global market strategist for J.P. Morgan Asset Management. The reason, he says: "We see the pandemic is controlled."

Overall domestic consumption in China benefited as well in November from an annual shopping event, known as Singles Day, that broke its annual sales record this year after e-commerce company Alibaba Group Holding Ltd. extended the period of discounting.

Monday's manufacturing data showed strength beneath the headline number. The subindex measuring production increased to 54.7 from 53.9 in October while total new orders, the gauge's main driver, rose to 53.9 after remaining unchanged for two months at 52.8. And the export-orders component increased to 51.5 in November, up from 51.0, remaining above the 50 mark for three straight months.

Mr. Zhu said he sees room for China's manufacturing strength to continue in the coming months, pointing to indicators suggesting that inventories are being depleted, which he said could lead to "a wave of restocking." Mr. Zhu was also encouraged by a small uptick in the manufacturing PMI's employment subindex, which points to factories hiring more employees to keep up with demand.

China's export machine, the main driver of the country's economic recovery, has beaten economists' gloomy expectations repeatedly this year. Outbound shipments from China rose 11.4% in October from a year earlier.

Zhao Qinghe, an economist with China's statistics bureau, said the country's trade sectors continue to recover but noted that some enterprises were worried about the recent sustained appreciation of the yuan, which is squeezing corporate profits and hurting export orders.

Some private economists are also worried about how long China's export advantage will last as the prospect of effective vaccines soon becoming available in developed economies turns spending in Western countries away from imported goods and toward domestic services.

"An end to lockdowns and a revival of spending on services in major export markets will take the wind out of China's recent export boom," Mark Williams, chief Asia economist at Capital Economics, told clients in a note last week.

Mr. Zhu, of J.P. Morgan, by contrast, said a widely available vaccine could help boost China's factory sector, since it could keep Western economies humming more generally, increasing demand for Chinese goods. Inventories in the developed world, he added, are also running low, potentially prompting a wave of restocking that would benefit Chinese manufacturers.

"After a vaccine is on track, consumer confidence will be much higher and can support demand from China," Mr. Zhu said, referring to demand for goods from the country.

As the economy picks up steam, Beijing policy makers are considering the unwinding of stimulus policies introduced earlier this year to offset the impact from coronavirus lockdowns. China will maintain a "normal" monetary policy as long as possible, the People's Bank of China said in a report last week, wording that many experts say points to a return to the central bank's pre-coronavirus focus on reining in risk.

Since Beijing didn't set an explicit growth target for 2020 and with the recovery looking strong, policy makers see no need to step up their stimulus, Larry Hu, an economist of Macquarie Capital Ltd., told clients in a note Friday. At this stage, China's monetary policy can best be described as "tapering" or "normalization," Mr. Hu said, though he also warned: "But policy could move to 'tightening' sometime next year."

Bingyan Wang contributed to this article.

Write to Jonathan Cheng at jonathan.cheng@wsj.com

(END) Dow Jones Newswires

11-30-20 0553ET

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