China's factory activity expands in June

China's manufacturing activity expanded at the fastest pace in 13 months in June as factories raced to meet recovering demand amid the lifting of COVID restrictions, according to a private sector survey on Friday.

The Caixin/Markit manufacturing purchasing managers' index (PMI) rose to 51.7 in June, marking the first expansion in four months and up from 48.1 in the previous month. This was well above analysts' expectations for a rise to 50.1. The 50-point index mark separates growth from contraction on a monthly basis. The rebound in the Caixin survey, which focuses more on export-oriented and small firms in coastal regions, was more convincing than the findings in an official survey. Economic activity accelerated in June, with the rollback of several COVID lockdowns as COVID-19 cases fell, and the gradual introduction of a series of support measures to stabilize growth announced by the State Council at the end of May. The production sub-index rose to the highest level since November 2020, while new orders halted a three-month decline and grew at the fastest pace in four months, supported by the first increase in export orders in nearly a year. Delivery times for suppliers stabilized in June as supply chain issues that had worsened over the past two years eased. However, despite the strong recovery, factories remained cautious about hiring more staff and employment fell for the third consecutive month. "Restoration in the post-pandemic period remained the focus of the current economy, but its foundation was far from strong," said Wang Zhe, senior economist at Caixin Insight Group. "Deteriorating household income and expectations caused by a weak labor market have dampened the recovery in demand. In parallel, supportive policies should target employees, gig workers and low-income groups affected by epidemics." China's economy has begun to chart a recovery path from supply shocks caused by strict lockdowns, but obstacles remain, including a record high unemployment rate in major cities, a still sluggish property market, soft consumer spending and fears of recurrent waves of infections. While analysts expect further improvement in economic conditions in the third quarter, the official GDP target of around 5.5% for this year will be hard to achieve unless the government abandons its zero-COVID strategy. President Xi Jinping defended the zero-COVID policy on Tuesday, saying China is willing to accept a temporary impact on economic development more than harm to people's health.