Finance & Economics

China’s Factory Activity Rises

In China, last month, an increase in the factory activity of local companies belonging to the private sector was recorded.

China’s Factory Activity Rises

The pace of the mentioned positive upward dynamic in June turned out to be the fastest in the last three years. The relevant information, which was obtained following the results of a private survey of the specified companies, was made public on Monday, July 1. It is worth noting that the upward dynamic is evidence that demand for Chinese firms’ products in the domestic market is currently growing. The positive indicator also reflects an increase in demand for the goods of companies from an Asian country abroad.

The Caixin manufacturing Purchasing Managers’ Index (PMI) in June was fixed at 51.8. It is worth noting that in May the corresponding indicator was 51.7. These data were published by S&P Global, which conducted an appropriate study.

It is worth noting that the mentioned information differs significantly from the results of the official survey of the Chinese government. The information obtained during the specified survey was made public last Sunday, June 30, and witnessed the dynamic of the decline in activity among the largest state-owned manufacturers. These data reflect the uneven recovery of the world’s second-largest economy.

The Caixin manufacturing PMI exceeded preliminary expectations for the dynamic of the data indicator. Also, the specified figure is on an upward trajectory for the sixth month in a row.

The National Bureau of Statistics’ PMI data is less optimistic. The corresponding figure for June was recorded at 49.5. In this case, there are no dynamic of changes compared to the results for May. The PMI is an important indicator of economic activity. A mark above 50 signals the upward trajectory of the mentioned process. At the same time, a figure below the specified mark indicates shrinking economic activity.

The divergence between the Caixin and the official PMIs has increased further since May, which is probably due to differences in the sectors covered. The corresponding statement was made by Goldman Sachs analysts on Monday.

The Caixin survey concerns companies whose activities are more export-oriented and consumer-related. The official survey mainly covers firms that operate in such sectors of the manufacturing industry as steel, cement, and chemical production. It is worth noting that these companies are more vulnerable to the impact of such a factor as a slowdown in the pace of investment in fixed assets.

There is a widespread opinion in the analytical environment that the current data on factory activity in China reflect the objective economic reality that currently exists in the Asian country. The mentioned reality is characterized by such features as a high level of exports and consumption, which is on an upward trajectory, against the background of a decrease in investment volumes.

Wang Zhe, senior economist at Caixin Insight Group, notes that in the Asian country, demand for consumer goods and intermediate products exceeds similar interest in investment goods. The expert also underlined that last month the state of affairs in China’s manufacturing sector showed improvement. Moreover, in this context, Wang Zhe noted that in June, supply, domestic demand, and exports were on the growth trajectory in the Asian country.

China’s customs has not yet released data for last month. At the same time, statistical information for May, published by this public authority, indicates an increase in exports from the Asian country by 7.6% compared with the result for the same period last year. It is worth noting that this figure exceeded the preliminary forecasts of analysts.

It is also necessary to pay attention to the fact that Chinese manufacturers, in the context of assessing the prospects for the results of their activities in the foreseeable future, do not demonstrate what can be described as an optimistic attitude. The pessimistic vision of producers from an Asian country is largely due to the increase in tariffs on their goods in the United States and the European Union.

Wang Zhe says that the indicator of expectations for future production volumes in June decreased by more than three points compared to the result for May, which is the lowest level since November 2019. The expert says that the concerns of companies recorded during the Caixin survey are related to prominent downward pressure on the Asian country’s economic system and intense market competition.

Last month, the EU announced additional tariffs of up to 38.1% on electric cars supplied to the region from China. European officials explained the relevant decision by saying that, in their opinion, the authorities of the Asian country unfairly support companies specializing in the production of vehicles of the mentioned category. They claim that Beijing’s specified practices harm the market positions of electric car manufacturers from the EU.

The provisional tariffs will remain in effect until July 4, while the investigation into the actions of the Chinese authorities continues. The issue of duties will be finally resolved on November 2.

It is worth noting that a month before the tariff increase on electric vehicles supplied to the EU from China, the United States authorities reported similar measures. Washington has increased the corresponding tariffs, from 25% to 100%. The leadership of the United States stated that the mentioned decision is aimed at increasing the number of jobs in the country and developing the local manufacturing sector.

As we have reported earlier, IMF Lifts China Growth Forecast.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.