China’s economy continues to outperform even the most bullish of analyst expectations, though U.S. businesses with operations in the Asian economic powerhouse remain as pessimistic as ever, according to new reports.
On Wednesday, a leading gauge of manufacturing hit an 11-year high. The official purchasing managers’ index, or PMI, climbed to 52.6 last month, the National Bureau of Statistics, known as NBS, said.
That was the metric’s highest reading since April 2012, and well above the 50-point threshold that separates expansion from contraction. It easily beat the 50.5 estimate that emerged in a Wall Street Journal poll of economists.
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“ ‘China is no longer regarded by American companies as the primary investment destination it once was.’ ”
“Key industries are continuing to [the] rise,” Zhao Qinghe, a senior expert with the statistics bureau, said in an editorial accompanying Wednesday’s data. Of 21 manufacturing areas surveyed, “all were booming,” Zhao said, citing particular robustness in food processing, textiles and automobiles.
A separate, independent measurement bolstered signs of the rebound.
The Caixin China General Manufacturing PMI, also released Wednesday, clawed its way into expansionary territory after six straight months of contraction. The gauge, separate from the government PMIs, focuses on smaller, private and tech-focused companies.
A senior economist at Caixin’s think tank, Wang Zhe, said that factory supply and demand expanded — the latter from both overseas and within China — and that employment began to recover, supply chains continued to normalize, and managers at factories displayed a clear trend of increased confidence.
“The economy has entered a post-epidemic recovery era,” he said.
From the archives (August 2022): China rolls out a further trillion yuan in economic stimulus after vowing it wouldn’t unleash big fiscal packages
Beijing-based economist Michael Pettis said that “February’s big jump, after six months of contraction, suggests that the expected revival of China’s economy this year may have started.”
Yet manufacturing wasn’t the only surprise among the day’s data. The gauge for services activity, known as the nonmanufacturing PMI and a rough measurement of consumption, leapt to a fiery 56.3 — also one of the highest readings in nearly a decade, and above economists’ expectations.
Yet whether it specifically marks an opening of the notoriously tight pocketbooks of Chinese customers remains unclear. Pettis told MarketWatch he expects a temporary revival of consumption, though “it’s still a little early to confirm it. I’d like to see another month of consumption data.”
“ ‘February’s big jump, after six months of contraction, suggests that the expected revival of China’s economy this year may have started.’ ”
Analysts at the consultancy China Beige Book agreed, saying, “We continue to believe that spending trends in the early second quarter will more reliably signal the strength of China’s 2023 consumer comeback.”
Furthermore, the good news has yet to galvanize U.S. businesses operating in the world’s No. 2 economy. After years of Beijing’s crippling anti-COVID policies, and amid heightened U.S.-China political tensions, American companies are as wary as ever of their prospects in China.
“China is no longer regarded by American companies as the primary investment destination it once was,” said the American Chamber of Commerce in China, in its annual Business Climate Survey Report, released Wednesday.
For the first time in the report’s history, less than half of respondents ranked China as a top-three investment priority. Half said they felt less welcome compared with a year ago, with particular pessimism among U.S. firms in the consumer sector.
“While U.S.-China trade has continued to grow throughout the pandemic, bilateral relations have become increasingly complex for the American business community in China to navigate,” said the chamber’s chairman, Colm Rafferty.
“Last year was particularly challenging for our member companies, as they dealt with China’s economic slowdown, COVID control measures, and ongoing efforts to ensure compliance with various new U.S.- and China-related regulations.”
Others echoed the skepticism.
“Part of the problem is that we are still not in a position to say that things are back to normal following the lifting of zero-COVID restrictions,” said James Zimmerman, a partner in the Beijing office of the law firm Perkins Coie who was not involved with the chamber’s report but has previously served as the group’s chairman.
In addition to the bilateral political tensions, Zimmerman told MarketWatch his concerns include overregulation in the technology sector and anticipated government fiscal belt tightening.
Tanner Brown covers China for MarketWatch and Barron’s.
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