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Chinese economic recovery sustained as trade gains momentum
09 October 2020Bernard Aw
Caixin PMI signals further solid growth in output
Order books continue to rise strongly, supported by solid
export sales, with goods export growth at a three-year high
Employment increases further as outlook remains upbeat
Caixin PMI data indicated a strong end to the third quarter for
the Chinese economy, with business activity maintaining a solid
pace of expansion during September. The recovery was sustained by
robust inflows of new business, with a jump in goods export growth
in particular providing a welcome boost.
Rising demand helped to generate further jobs growth as capacity
pressures rose steadily. Business sentiment about the year-ahead
outlook remained upbeat, boding well for mainland China as the
economy heads into the fourth quarter.
China PMI shows steady recovery
The Caixin headline Composite PMI for mainland China, compiled
by IHS Markit and covering manufacturing and services, dipped to
54.5 in September, down slightly from 55.1 in August, but
nevertheless indicated a further steady improvement in business
conditions. The survey added to evidence that the Chinese economic
recovery was solid in the third quarter. At 54.7, the average PMI
reading in the three months ending September was above the 52.6
recorded in the second quarter.
Moreover, the increase in overall order book volumes also held
up well, with the latest expansion supported by a stronger rise in
new export orders. Backlogs of work continued to increase, albeit
more modest when compared to the rise in new orders. This is likely
due to strong output growth as firms continued to respond to
increased demand following the easing of pandemic restrictions
earlier in the year.
The recovery remained broad-based, with manufacturing and
services driving the expansion in business activity. Manufacturing
output rose for a seventh straight month in September, though the
rate of increase moderated from the over nine-year high seen in
August. Similarly, services business activity expanded for a fifth
month in a row, in part reflecting a sustained recovery in consumer
demand. Seen among the best performers were automakers and
producers of household goods, linked to improved consumer behaviour
and reopened retail businesses as the pandemic has been brought
under control. Activity at financial services and technology
services also continued to increase.
Goods exports rise at steepest rate for three
years
The upturn in business activity was driven by a further
strengthening of demand conditions, with the manufacturing sector
registering the stronger rise in new orders than services.
A key development driving growth in manufacturing sales was a
surge in merchandise export sales. Overseas orders of Chinese
manufactured products increased at the fastest rate for three years
during September after marginal growth in August. This strong
expansion in exports reflected an increase in the number of
countries reopening their economies and moving towards more normal
market conditions.
On the other hand, new business in the service sector was
fuelled primarily by the domestic market, with external demand
continuing to deteriorate as many countries still maintained some
international travel restrictions despite a recent loosening of
border controls in parts of the world.
Supply chains still under pressure
The restoration of supply chains remained under way, but the
combination of demand revival and stock shortages at distributors
(linked to reduced capacity) continued to affect the ability of
suppliers to make timely deliveries. While the lengthening of
delivery times was modest, and much improved from February, at the
height of the pandemic in mainland China, a persisting issue with
input availability could impact the extent to which manufacturers
can raise production volumes.
Job creation
The sustained recovery in Chinese business activity and rising
demand saw a second straight month of job creation in September.
The service sector reported net jobs growth for a second month
running while manufacturing employment stabilised after an
eight-month period of job cuts.
Can the recovery continue?
Business sentiment among Chinese firms remained positive at the
end of the third quarter. The PMI's Future Output Index, a gauge of
confidence, rose from August and was slightly above the long-term
trend. Optimism reflects expectations of further improvement in
economic conditions and greater strengthening in client demand once
the global pandemic is brought under control. Further export growth
will also add to the sustainability of the recovery, alongside
greater relaxation of travel restrictions.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
