China’s official purchasing managers’ index (PMI) fell to 49.5 in March, the government announced on Wednesday. In this index any reading below 50 signals that the sector is in contraction. This is the first time in five months that this index has shown China’s manufacturing sector to be in contraction.
The cause is obvious: In pursuit of its Zero Covid-19 policy China has locked down major technology and factory cities to combat a surge in infections.
China’s manufacturing activity contracted in March as authorities locked down major technology and factory hubs, including Shenzhen (technology), Changchun (automobiles) and Shanghai (finance), to curb a surge in Covid cases.
The bad news in the bad news? The PMI survey period ended with March 25, three days before the lockdown in Shanghai.
Other PMI indexes painted a similarly grim picture. The non-manufacturing index, which measures activity in the construction and services sectors, slumped to 48.4, below the consensus forecast of 50.3. The index measuring new export orders dropped further into contraction, falling to 47.2 in March from 49 in February. The employment sub-index for manufacturing jobs dropped to 48.6 in March from 49.2 in February.
It’s perhaps comforting (or just odd or maybe even scary) that the Shanghai Composite Index closed down only 0.18% on Wednesday, March 30. The CSI 300 Index slid only 0.58%.
That’s likely to be a reaction to
1. a belief that the lockdowns will soon be over and that China’s manufacturing activity will bounce back to “normal.”
2. supportive pledges from Premier Li Keqiang reiterated Wednesday that China will stick to its full-year growth target despite new challenges and increased downward pressures on growth. (The government has set a growth target for “around 5.5%” for the year.)
3. faith that those words and that growth target will be backed up by cash from the People’s Bank and stimulus from the national government.
On the other hand, if you’re an investor hoping that the global economy will avoid recession in the second half of 2022 or 2023, these numbers are disquieting.
