The “peak” of China’s economic growth has already passed or will soon do so and momentum will only “wane” further for the remainder of the year, analysts said, after slowing domestic and overseas demand led to lower-than-expected sentiment in the manufacturing and non-manufacturing sectors in April.
The results of the official purchasing managers’ indices (PMI) released on Friday indicated a modest cooling economic activity in the first month of the second quarter following on from a record year-on-year growth rate of 18.3 per cent in the first three months of 2021.
The official manufacturing PMI – a survey of sentiment among factory owners – fell to 51.1 in April from 51.9 in March, the National Bureau of Statistics (NBS) announced on Friday. The result was below expected.
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A reading above 50 indicating growth in sector activity, while a reading below the mark represents contraction. The higher the reading above 50, the faster the pace of expansion.
Activity is still robust and is likely to remain so in the near-term, but sequential growth will probably continue to cool
April’s Caixin/Markit manufacturing PMI – which largely measures sentiment among smaller, mostly private firms – rose from an 11-month low of 50.6 in March to 51.9 in April. This signalled the strongest sector activity since December 2020, albeit one that was modest overall.
The official non-manufacturing PMI – which measures morale in the services and construction sectors – fell to 54.9 in April from 56.3 in March. The reading was also below expected.
“The latest surveys suggest that growth edged down this month. Supply-side disruptions appear mostly to blame for a slower rise in manufacturing output. But there are also signs of a demand-led slowdown in construction and services. Activity is still robust and is likely to remain so in the near-term, but sequential growth will probably continue to cool,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“The latest survey data is consistent with our view that, with the economy already above its pre-coronavirus trend and the policy stance less supportive, growth momentum will wane this year. The key remaining prop is the export sector, but demand for Chinese consumer goods is likely to fall back over the coming quarters as vaccine roll-outs allow global consumption patterns to return closer to normal.”
Liang Zhonghua, chief macro analyst at Haitong Securities, said that data showed that China’s economic growth had already peaked in the fourth quarter of last year. Both domestic and overseas demand are now slowing down, production momentum is weakening and inflation pressure is continuing.
“After short-term disruptions, the economic growth momentum has turned back to a downward trajectory,” said Liang.
The official composite PMI – a combination of the manufacturing and non-manufacturing indices – fell to 53.8 in April from 55.3 in March.
“The overall trend is moving towards peaking, the growth has returned to its potential level, so there is not much room for further acceleration,” said Ding Shuang, chief Greater China economist of Standard Chartered Bank in Hong Kong.
Lu Ting, chief China economist at investment bank Nomura, said that the earlier-than-usual resumption of business activity following the Lunar New Year holiday had boosted March’s PMI figures, but also created a high base for April, especially for large firms. Many migrant workers did not return home during the holidays because of the coronavirus outbreak at that time, meaning they could return to work sooner.
The supply shortages of some key intermediate goods such as microchips had likely started to weigh on the production of some industrial products including cars and home-use electronics, he said.
The Japanese brokerage expects the official manufacturing PMI to rebound slightly to around 51.2 in May and is likely to stay around 51 for the remainder of the year, while the non-manufacturing PMI is also likely to rebound next month due to strong expected bookings on air tickets and hotels for the five-day Labour Day holiday that begins on Saturday, but might drop slightly after that.
The weakening of economic data also suggests Beijing will slow its moves to curb economic stimulus, at least for now, Lu said.
Surveyed companies said that the problems such as chip shortage, clogged international logistics, a container shortage and rising freight rates were still serious
“The PMI readings suggest market concerns over an imminent [People’s Bank of China] tightening are overdone. We maintain our view that Beijing will stick to its ‘no sharp shift’ commitment when normalising its policy stance in coming months, especially considering the increasing growth divergence among regions and rising credit risks,” said Lu.
Within the official non-manufacturing index, service sector sentiment fell to 54.4 in April from 55.2 in March, while construction sector morale fell to 57.4 from 62.3. The employment also fell to 48.7 in April from 49.7 in March.
Within the official manufacturing index, the new order subindex fell to 52.0 in April from 53.6 in March, while the new export orders subindex fell to 50.4 from 51.2. The employment subindex, meanwhile, declined to 49.6 from 50.1 to fall back into contraction territory.
“Surveyed companies said that the problems such as chip shortage, clogged international logistics, a container shortage and rising freight rates were still serious,” said senior NBS statistician Zhao Qinghe.
“The hi-tech manufacturing suppliers’ delivery time index has been below 44 for three months, the raw material procurement cycle has been extended, and normal production activities have been affected to some extent.
“The manufacturing PMI in April continued to expand on top of the obvious rebound in the previous month, the intensity was weakened, but it was still higher than the level of the same period in 2019 and 2020, and the manufacturing industry maintained steady growth,” Zhao said.
“The non-manufacturing sector still showed rapid expansion, but the pace has slowed down. Thanks to the Tomb Sweeping Day holiday [on April 5] and the [coronavirus] outbreak prevention progress, consumer spending in the service sector recovered further recently.”
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