Manufacturing and Service PMI Expands After 4 Months
Inflation Expected to Worsen Amid '1.4 Billion' Demand Surge
Some Advise "Excessive Concern"
[Asia Economy Beijing=Special Correspondent Kim Hyunjung] China's economic indicators have recovered to an 'expansion' phase for the first time in four months due to the effects of reopening (resumption of economic activities) and the Spring Festival (Chunje, Chinese New Year). There is also growing speculation that the demand recovery, which is faster than expected, could fuel global inflation.
On the 31st, China's National Bureau of Statistics announced that the manufacturing Purchasing Managers' Index (PMI) for January recorded 50.1, rising 3.1 points from the previous month (47.0). After a continuous decline since peaking at 50.1 in September last year, it rebounded for the first time in four months. The rebound also exceeded experts' expectations (49.8).
The manufacturing PMI is compiled by surveying purchasing managers from over 700 manufacturing companies nationwide on five sub-indices: new orders, production, shipments, inventory, and employment. A reading above the baseline of 50 indicates an expansion phase, while below 50 indicates contraction. The fact that the announced figure exceeded the baseline and recovered the expansion phase is also the first time in four months since last September.
The sub-indices of the manufacturing PMI showed that the production index was 49.8 and the new orders index was 50.9, rising 5.2 points and 7.0 points respectively. The pharmaceutical sector led the upward trend, and agriculture, food processing, pharmaceuticals, general equipment, railways, shipbuilding, and aerospace equipment all showed expansion phases in both production and new orders indices. The services (non-manufacturing) PMI was 54.4, showing a stronger recovery compared to the previous month (41.6). This is the largest rebound since the early COVID-19 outbreak in February 2020, when it jumped from 29.6 to 52.3 in March. Experts had expected 52.0.
The positive economic indicators announced on this day are attributed to the combined effects of China's 'reopening' and the Spring Festival (Chunje, January 21?27), one of China's largest holidays. In particular, the impact of 'revenge consumption,' where Chinese people have unleashed spending restrained for over three years due to government advisories during the COVID-19 spread, is significant. The Chinese overseas news site ‘Guojizhaixian’ (國際在線) cited local travel platforms, reporting that domestic tourists during the Spring Festival reached 308 million, and tourism revenue was 375.8 billion yuan (approximately 68.5 trillion KRW), increasing by 23.1% and 30% year-on-year respectively. The number of inbound and outbound travelers jumped 120.5% compared to last year. Guojizhaixian stated, "The consumption boom during the Spring Festival has revitalized the global economy," adding, "Consumption will improve throughout the year, and the launch of new products will accelerate."
The sharp consumption recovery in China, a country with a population of 1.4 billion, is also fueling expectations that it could drive global inflation. Bloomberg reported, "Concerns about China's pandemic lockdowns and infections will no longer constrain the Chinese economy," and "Global inflation could rise by 1 percentage point by the end of this year compared to a scenario where China maintains lockdowns." It added, "While China's aggressive stimulus during the 2008 global financial crisis played a positive role worldwide, China's reopening in 2023 will be a mixed blessing."
However, there are voices that these concerns are overly exaggerated. Global consulting firm Bain & Company forecast that China's real estate sector slump will continue for the time being, and steel demand will not recover until the second half of this year. UBS predicted that China's consumption rebound will be limited to tourism and mainly driven by domestic consumption.
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