SINGAPORE—Economic activity in China declined for a third straight month in May, though at a slower pace than in April, according to surveys of businesses and factories.
But while the surveys suggest the economy is beginning to climb out of a severe downturn as Covid-19 restrictions are eased, economists are skeptical about a big revival. Growth will remain subdued, they say, as long as the government employs a zero-tolerance approach to virus outbreaks that involves mass lockdowns and business closures.
Shanghai, for more than two months under a lockdown that has brought daily life and economic activity almost to a standstill, is due to begin a phased exit Wednesday. But less-severe restrictions remain in place in cities including Beijing and Tianjin.
The global backdrop has worsened, with rising interest rates and high inflation eating into consumer and business spending around the world, limiting the scope for the kind of export-led revival China enjoyed in 2020.
China’s official manufacturing purchasing managers index rose to 49.6 in May, China’s National Bureau of Statistics said Tuesday, from April’s 47.4—the lowest in more than two years. It beat the 48.9 reading economists polled by The Wall Street Journal were expecting.
A separate gauge of activity in services and construction also improved, rising to 47.8 in May from 41.9 in April.
But both indexes remained below the 50 mark that indicates expansion rather than contraction, a sign that while the economy might be past the trough of its current slump it has further to go to return to growth.
Gauges of overall factory production, export demand and new orders all remained in negative territory in May, according to surveys of purchasing managers.
Photo:
Cfoto/Zuma Press
The surveys last registered an expansion in activity in February. Official data on industrial production, retail sales and fixed investment for April showed the economy slowed sharply last month as lockdowns blanketed big chunks of the country, shutting factories, keeping millions at home and snarling transportation. Unemployment rose.
Tuesday’s data suggest the economic pain continued through May, underscoring the risk of contraction for the economy in the second quarter. Gauges of overall factory production, export demand and new orders all remained in negative territory, according to the surveys.
Ting Lu,
chief China economist at Nomura in Hong Kong, said he expects Shanghai’s reopening will push manufacturing activity back into expansion in June, but added he expects the economy to struggle.
“The real turning point will be marked by a shift in China’s stance on its zero Covid strategy,” he said in a note to clients.
Most economists think growth in 2022 will fall well short of Beijing’s target of about 5.5%.
Barclays
last week cut its forecast by a full percentage point to 3.3%, citing deteriorating economic data and the likelihood of further lockdowns because of the difficulty of containing the fast-spreading Omicron variant of the virus.
On Wednesday, Chinese Premier
Li Keqiang
held a rare nationwide meeting with officials via teleconference to bolster an economy battered by the worst Covid outbreak in the country since early 2020. He said the difficulties in some areas are even greater than the 2020 pandemic shock, and called on local governments and state-owned companies to take steps to stabilize growth.
National and local governments and China’s central bank have announced a blizzard of stimulus measures, including loans for small businesses and airlines, cheap mortgages for first-time home buyers and subsidies to help people buy electric cars and laptops.
Beijing also wants to juice the economy with big spending on infrastructure. The finance ministry on Monday told provincial governments to accelerate borrowing plans to finance new projects. Authorities should finish issuing this year’s special-purpose infrastructure bonds by June and use the funds raised by the end of August, the ministry said.
The finance ministry said that local governments had issued 1.85 trillion yuan, equivalent to $278 billion, in special-purpose bonds as of May 27, 1.36 trillion yuan more than at the same point a year earlier and 54% of the annual quota for 2022.
Some economists are skeptical the government’s stimulus efforts will power a big recovery. The prospect of further lockdowns is restraining consumer spending and businesses’ appetite for investment, muffling the potential effect of easier credit.
Craig Botham,
chief China economist at Pantheon Macroeconomics in London, said strict criteria governing which projects are eligible for financing means provincial governments are struggling to spend the infrastructure funds they already have.
—Bingyan Wang and Grace Zhu in Beijing contributed to this article.
Write to Jason Douglas at jason.douglas@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
SINGAPORE—Economic activity in China declined for a third straight month in May, though at a slower pace than in April, according to surveys of businesses and factories.
But while the surveys suggest the economy is beginning to climb out of a severe downturn as Covid-19 restrictions are eased, economists are skeptical about a big revival. Growth will remain subdued, they say, as long as the government employs a zero-tolerance approach to virus outbreaks that involves mass lockdowns and business closures.
Shanghai, for more than two months under a lockdown that has brought daily life and economic activity almost to a standstill, is due to begin a phased exit Wednesday. But less-severe restrictions remain in place in cities including Beijing and Tianjin.
The global backdrop has worsened, with rising interest rates and high inflation eating into consumer and business spending around the world, limiting the scope for the kind of export-led revival China enjoyed in 2020.
China’s official manufacturing purchasing managers index rose to 49.6 in May, China’s National Bureau of Statistics said Tuesday, from April’s 47.4—the lowest in more than two years. It beat the 48.9 reading economists polled by The Wall Street Journal were expecting.
A separate gauge of activity in services and construction also improved, rising to 47.8 in May from 41.9 in April.
But both indexes remained below the 50 mark that indicates expansion rather than contraction, a sign that while the economy might be past the trough of its current slump it has further to go to return to growth.
Gauges of overall factory production, export demand and new orders all remained in negative territory in May, according to surveys of purchasing managers.
Photo:
Cfoto/Zuma Press
The surveys last registered an expansion in activity in February. Official data on industrial production, retail sales and fixed investment for April showed the economy slowed sharply last month as lockdowns blanketed big chunks of the country, shutting factories, keeping millions at home and snarling transportation. Unemployment rose.
Tuesday’s data suggest the economic pain continued through May, underscoring the risk of contraction for the economy in the second quarter. Gauges of overall factory production, export demand and new orders all remained in negative territory, according to the surveys.
Ting Lu,
chief China economist at Nomura in Hong Kong, said he expects Shanghai’s reopening will push manufacturing activity back into expansion in June, but added he expects the economy to struggle.
“The real turning point will be marked by a shift in China’s stance on its zero Covid strategy,” he said in a note to clients.
Most economists think growth in 2022 will fall well short of Beijing’s target of about 5.5%.
Barclays
last week cut its forecast by a full percentage point to 3.3%, citing deteriorating economic data and the likelihood of further lockdowns because of the difficulty of containing the fast-spreading Omicron variant of the virus.
On Wednesday, Chinese Premier
Li Keqiang
held a rare nationwide meeting with officials via teleconference to bolster an economy battered by the worst Covid outbreak in the country since early 2020. He said the difficulties in some areas are even greater than the 2020 pandemic shock, and called on local governments and state-owned companies to take steps to stabilize growth.
National and local governments and China’s central bank have announced a blizzard of stimulus measures, including loans for small businesses and airlines, cheap mortgages for first-time home buyers and subsidies to help people buy electric cars and laptops.
Beijing also wants to juice the economy with big spending on infrastructure. The finance ministry on Monday told provincial governments to accelerate borrowing plans to finance new projects. Authorities should finish issuing this year’s special-purpose infrastructure bonds by June and use the funds raised by the end of August, the ministry said.
The finance ministry said that local governments had issued 1.85 trillion yuan, equivalent to $278 billion, in special-purpose bonds as of May 27, 1.36 trillion yuan more than at the same point a year earlier and 54% of the annual quota for 2022.
Some economists are skeptical the government’s stimulus efforts will power a big recovery. The prospect of further lockdowns is restraining consumer spending and businesses’ appetite for investment, muffling the potential effect of easier credit.
Craig Botham,
chief China economist at Pantheon Macroeconomics in London, said strict criteria governing which projects are eligible for financing means provincial governments are struggling to spend the infrastructure funds they already have.
—Bingyan Wang and Grace Zhu in Beijing contributed to this article.
Write to Jason Douglas at jason.douglas@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8