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China’s Coronavirus-Battered Economy Shows Tentative Signs of Renewed Life

An official gauge of China’s manufacturing activity rebounded strongly in March as work resumption picked up, though economists warned that business activity remains far from normal following a devastating coronavirus outbreak.

China’s official manufacturing purchasing managers index jumped to a reading of 52.0 in March from a record low of 35.7 in February, the National Bureau of Statistics said Tuesday.

The result was higher than the median forecast of a 51.5 reading by economists surveyed by The Wall Street Journal. Readings above 50 indicate expansion, while those below 50 signal contraction.

A separate nonmanufacturing PMI, also released Tuesday, showed service and construction activity similarly rebounding in March to 52.3 from 29.6 in February.

But the data rebound is largely confined, for now, to an improvement in sentiment after two months in which the economy ground to a near-total halt as the coronavirus swept across China, forcing the government to implement strict measures to prevent its spread.

China’s statistics bureau cautioned that the sharp rebound in the manufacturing PMI reading didn’t mean economic activity had returned to pre-virus levels. The bureau said the result merely reflected the resumption of work after more than a month of forced idleness.

Other, more-concrete economic indicators for March will likely show steep year-over-year declines when they are released in the coming days, some analysts said. These include figures on foreign trade, industrial output, investment and consumption in the world’s second-largest economy.

The data released Tuesday hinted at some of the pain still to come. The manufacturing PMI’s subindex for new export orders, while rising to 46.4 in March from 28.7 in February, remained in contraction territory, though the subindex measuring factory production climbed to 54.1 from 27.8 in the previous month.

“While the PMI reading in March pointed to a sharp rebound, the economic activity was far from normal levels,” said Tang Jianwei, an economist at Bank of Communications.

Mr. Tang said he expects the economy as a whole to have contracted in March from a year earlier, though he said the economic data would likely show smaller year-over-year declines than in the January-February period. He said a basket of stimulus measures is needed to get the economy back on track.

China injected billions of dollars of liquidity into the financial system after the virus first broke out in the central Chinese city of Wuhan. Beginning in late January, authorities ordered an extended shutdown of factories and other businesses, imposed travel restrictions and locked down cities severely hit by the virus, shutting down economic activity across much of the country for more than a month.

As a result, Chinese economic activity plunged across the board in the first two months of the year.

In addition to the new liquidity injections, Chinese authorities have also exempted tax and social security insurance payments for the nation’s smaller businesses, which are most vulnerable to economic shocks.

China’s Politburo, the country’s top policy-making body, said last week that it would roll out many measures in a bid to stimulate domestic demand, including increasing the fiscal deficit, lowering lending rates and issuing more government bonds and local government debt. On Monday the central bank, the People’s Bank of China, cut a key short-term market interest rate, which analysts said could guide benchmark lending rates lower in the coming month.

Despite the measures, economists widely forecast the Chinese economy to post a year-over-year contraction in the first quarter of the year–an outcome that would complicate Beijing’s year-end goal of doubling the overall size of the economy from a decade earlier. Economists said a growth rate of roughly 5.5% in 2020 is needed for Beijing to meet that goal.

However, with the rapid spread of the coronavirus in Europe and the U.S., which are among China’s biggest overseas markets, “it’s even hard for China to realize 4% to 5% economic growth” this year, Ma Jun, an adviser to the PBOC, said recently, according to a report published Tuesday by the state-run Economic Daily.

Mr. Ma suggested Beijing scrap its growth target for 2020. China normally sets its annual economic target during a legislative meeting that is held annually in March. That meeting has been postponed to an unspecified date this year because of the pandemic.

While the Chinese economy is recovering, albeit slowly, weakening overseas demand is set to curb the country’s economic growth in the coming months, said Ding Shuang, an economist with Standard Chartered.

In terms of coronavirus impact, “China’s first quarter is other countries’ second quarter, so if China’s first-quarter GDP falls sharper than expected, that means the worst hasn’t come yet for the Chinese economy,” said Mr. Ding.
Source: Dow Jones

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