Signs of Economic Recovery in China
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Signs of Economic Recovery in China

By Al-Attiyah Foundation, Qatar

Signs of Economic Recovery in China

In this time of “Demand Destruction,” the world’s economists are looking for signs of an upturn. They need to look no further than China, where there are signs of “Green Shoots” already developing.

The Purchasing Managers' Index (PMI) is an index summarised and compiled through the results of a monthly survey of enterprises purchasing managers and is usually provided by Moody Analytics on a country by country basis. It covers every aspect of enterprises, including purchasing, production, and logistics. As such, it is one of the leading indices commonly adopted by the international community for monitoring macroeconomic trends, and it plays an important role in forecasting and examining economic trends. 

The threshold of PMI at 50% is used as the cut-off point for economic performance. If PMI is above 50%, it reflects the view that the manufacturing economy is expanding; if it is less than 50 percent, it reflects the view that the manufacturing economy is in recession.

Purchasing Managers Index in China

The Chinese economy has offered a glimmer of hope after signs of a recovery emerged as Beijing eases back restrictions. The chart above and across, running from April 2019 to March 2020, shows a sharp upturn in expectations. The PMI for China reflects a fairly neutral position up to January 2020 i.e. the purchasing managers expected business as usual, neither contracting or expanding.

Proxy indicators tracking the world’s second-largest economy point to a sharp improvement from last month’s low, with steel demand and coal consumption recovering back towards normal levels. 

Steel demand has rebounded sharply to catch up to last year’s levels, while coal consumption by electricity producers is now down just a 10%, year on year, Goldman Sachs revealed.

In addition, it has also been noted that domestic air travel, traffic congestion, and air quality are also gradually moving back to pre-pandemic levels. These are all indications that China’s economy, which has been badly ravaged by the Coronavirus, is starting to bounce back as factories, offices, and shops reopen. China’s National Bureau of Statistics (NBS) released a set of encouraging data for March that indicated Beijing’s efforts to restart its economy is showing some positive results. A total of 96.6% of China’s large and medium-sized enterprises have resumed production, up 17.7% points from February, according to a survey by NBS.

The anticipation that China is on the way back to economic recovery is also supported in recent publications by many economic research institutions and entities. Moody Analytics expects the Chinese economic activity data will continue to improve, as factories reopen and more and more workers return to cities to work, after the extended break caused by COVID-19. 

The macroeconomic research firm, MRB Partners, expressed confidence that economic growth in China will begin recovering in the second half of the year and continue through next year, albeit at below prior expected rates. Further, MRB Partners believes China's recovery will have positive spillovers for the Asian region since it is the largest trading partner of most economies in Asia.

Bank of America Global Research (BAGR) noted that China would largely return to work in the coming weeks, but would face a very bad external-demand environment as other economies experience a longer version of China's one-month shutdown. However, it also believes that countries in Asia have shown others how to respond to the COVID-19 crisis effectively.

In summary, China is in recovery domestically. How far its export market progresses will be dependent on how other countries progress. The April economic results from China will certainly be keenly anticipated!

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