Factory Activity Expanded in June Despite Uncertainties

China has the second-largest economy in the world. This fact underlines the importance of the local economy. Moreover, the country continues to develop and it has the potential to achieve even bigger goals. However, the coronavirus pandemic which originated in Wuhan caused serious damage to the local as well as the global economy. Nevertheless, factory activity expanded in June. 

Importantly, the official Purchasing Manager’s Index (PMI) reached 50.9. As a reminder, PMI readings above 50 indicate expansion, while those below that level indicate contraction. It is worth noting that compared to May, the PMI increased from 50.6 to 50.9 in June. 

According to the statement released by the country’s National Bureau of Statistics, supply, as well as demand, started to pick up, with the index for new orders rising for two months in a row. Importantly, better readings in both the import and export indices are also helping, as major economies reopen.

Nevertheless, uncertainties remain as the pandemic has not been effectively controlled overseas. Let’s have a look at the index for new export orders. Notably, the index for new export orders was still in the contradictory territory, despite the fact that reading improved in June. This month, the index reading rose to 42.6 while in May it stood at 35.3.

Factory activity and main challenges

It is worth noting that, China’s manufacturing activity has been hit by shocks on both supply and demand fronts due to measures introduced by the governments to contain the coronavirus pandemic. As mentioned above, the virus first emerged in the central Chinese city of Wuhan.

Interestingly, factories in China faced problems fulfilling orders early in the pandemic. However, at the moment they have to deal with another problem. The demand for various products fell around the world. Unfortunately, the coronavirus cases continue to rise as the number of cases surpassed more than 10 million. 

Moreover, a resurgence of new cases in Beijing, as well as some surrounding cities, created an additional problem for the domestic services sector. The number of people who are willing to attend various events is quite low as many people are trying to avoid mass gatherings. For example, revenue from the three-day Dragon Boat Festival fell by nearly 69%. 

It will be interesting to have look at the private survey as well. On Wednesday, the private survey will become available to the public. Interestingly, the private survey Caixin/IHS Markit survey features a bigger mix of small and medium-sized businesses. The official PMI survey relies on the data gathered from big businesses and state-owned enterprises.