Mainland China manufacturing surges back to growth in Jun: S&P Global




China’s manufacturing sector sprang back into life in June as the partial relaxation of COVID-19 containment measures helped drive the second-steepest monthly expansion of output seen for over a decade, according to purchasing managers’ index (PMI) survey data generated by S&P Global for Caixin.

The improved situation in June also helped boost exports, shorten supplier delivery times and took pressure off prices.

China’s manufacturing sector sprang back into life in June as the partial relaxation of COVID-19 containment measures helped drive the second-steepest monthly expansion of output seen for over a decade, according to purchasing managers’ index (PMI) survey data generated by S&P Global for Caixin. However, production growth could slow again in coming month.

However, while the rebound in June bodes well for the immediate economic situation in mainland China and more broadly for the global economy via improved supply chains, there are a number of survey sub-indices which suggest that production growth could slow again in coming months as the initial rebound fades.

Manufacturing growth rebounded sharply in mainland China during June. The survey’s output index surged by 13 points compared to May’s reading, registering the largest rise in the 18-year history with the sole exception of the growth revival seen after the initial factory shutdowns at the start of the pandemic in March 2020.

The upturn in the index brings it to a level which signals the return of strong factory production growth after three months of severe declines. Since 2011, only November 2020 saw faster production growth than recorded by the latest June survey.

The resurgent growth follows the relaxation of some of China’s COVID-19 containment measures, which had been stepped up in response to the spread of the Omicron variant, a press release from S&P Global said.

One immediate knock-on benefit of the looser COVID-19 containment measures and upturn in manufacturing performance was a shortening of supplier delivery times for mainland China. Although marginal, this shortening of lead times was the first improvement recorded since the end of 2018.

A corollary of the improving supply situation was a reduction in pricing power held by suppliers, which helped offset upward energy costs to keep producer input price inflation well below the peaks seen earlier in the pandemic. Average prices charged at the factory gate meanwhile fell, albeit only slightly, for a second successive month.

From a broader global perspective, the ramping up of production in China should also start to bear fruit in terms of global supply chains in coming months.

A further upside to the global economy from China’s return to growth was a jump in export volumes, with new export orders rising at the sharpest rate for over a year in June.

However, it’s clear that overall demand growth remains relatively subdued once domestic orders are also taken into account, and is lagging that of production, to suggest that factory growth may remain modest after the initial reopening after Omicron, S&P Global said.

Two other demand-focused indicators suggest the need for some caution when assessing what might come next for China’s factory sector.

First, backlogs of work fell in June, reflecting the outpacing of output relative to inflows of new orders, pointing to a reduced pipeline of orders to support production in coming months.

Second, the survey’s new orders to inventory ratio—widely used as a reliable indicator of near-term production trends—remained relatively subdued in June. Although rising to the highest since February, this ratio is by no means indicating strong production growth in coming months.

Fibre2Fashion News Desk (DS)





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