China: has the economy bottomed-out?

February’s PMI* survey data have not escaped the effects of the coronavirus epidemic. China’s National Bureau of Statistics (NBS) reported a steep decline in the manufacturing PMI*, which fell 14.3 points to 35.7. The non-manufacturing PMI* plummeted even further by 24.5 points down to 29.6.

The Caixin/Markit manufacturing PMI* hardly did better, falling 10.8 points down to 40.3. The unprecedented size of these corrections is far beyond what the market was expecting, and index levels are now sitting at lows never seen before. The subcomponents did no better than the overall number: all worsened except for delivery times, which got longer.

Our analysis

The survey data is clearly dismal and underlines how the health crisis has crippled the economy and completely disrupted production lines. However, the statement published alongside the official PMI* data indicates that 78.9% of the companies surveyed resumed business on 25 February.

With President Xi Jinping clearly seeking to relaunch the economy and the number of new COVID-19 cases in the Hubei province falling rapidly, business can be expected to pick up quickly in the weeks ahead. Several provinces have already lowered their alert levels and some indicators are starting to show signs of improvement such as coal consumption, port activity, and road traffic volumes.

This suggests March could see a recovery, although striking the right balance between business and health will be a delicate task.

*The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.