China’s boom level improved significantly
International Business News – China’s economy has started to normalize. the composite PMI output index stood at 52.9 in January, a sharp improvement of 10.3 percentage points from the previous month. For the first time in 4 months, it surpassed the 50 rongdu line. The epidemic prevention and control measures were relaxed and economic activity started to pick up. However, households’ intention to save money is strong and it remains doubtful whether the boom level will continue to improve.
The figures were released by China’s National Bureau of Statistics on Jan. 31. A reading above 50 indicates month-on-month expansion in activity, while a reading below 50 indicates contraction. Both the manufacturing and non-manufacturing PMIs were above 50 in January for the first time since September 2022. The improvement is the largest since March 2020, the early days of the pandemic.
The main reason is relaxed epidemic prevention and control measures. For the first time in four years, there were no restrictions on movement during the Spring Festival, and more people returned to their hometowns and traveled abroad. The epidemic is stabilizing in urban areas, and service industries such as catering and accommodation are showing improvement. New orders in the manufacturing sector also recovered, crossing the 50-point line in January for the first time in seven months.
Indicators of production and business expectations also rose. In the non-manufacturing sector in particular, the index of business activity expectations reached its highest level since June 2012. Uncertainty about the economic outlook has eased, with views pointing to a marked increase in business confidence.
There are also destabilizing factors that could throw cold water on China’s economic recovery. One of them is the lack of strength in the foreign economy. The index of new export orders for manufacturing, at 46.1, remains significantly below 50. Producers who responded that demand is less than supply capacity account for more than 50% of the total.
Another destabilizing factor is the intention of households to save money. The number of domestic tourists during the long Spring Festival holiday recovered to 89% of the 2019 level, but tourism revenue was only 73% of the 2019 level. Per capita spending by tourists decreased.
Statistics from the People’s Bank of China (PBOC) show that Chinese household deposits increased by an extra 8 trillion yuan year-on-year in 2022. According to China Haitong Securities’ projections, Chinese households have accumulated about 3 trillion yuan of excess savings under the new crown. According to its analysis, this has the potential to become funds for retaliatory spending.
However, the Cheung Kong Graduate School of Business’ boom level survey (which is mostly conducted by private companies) shows that the index is still below the 50 Rongguo line. If private companies, which provide 80% of the jobs, fail to switch to an aggressive business approach, households will not be able to eliminate the uneasiness regarding jobs and the tendency to save money will continue.