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Chinese workers restart battery production
Image: Getty Images/AFP

China manufacturing up sharply

Hardy Graupner
March 31, 2020

A number of recent indicators suggest that the world's second-largest economy is on its way back to normalcy. Tuesday's PMI index is a case in point, but analysts warn that China's woes are far from over.

https://p.dw.com/p/3aEwM

A couple of months ago, economists would have criticized China for boosting its coal-burning activities. The Asian nation has a long record of mining and burning roughly half of the global supply of what's considered to be the dirtiest fossil fuel on this planet.

Environmentalists haven't missed a chance to chide the world's second-largest economy for being the nation with the biggest carbon emissions worldwide.

Right now, though, increased coal burning means something good at least for economists as it is a rather reliable indicator that China's economic activities are picking up again, following weeks of virtual lockdown due to the coronavirus outbreak.

Billowing smoke a beacon

Citing figures from the China Coal Transport & Distribution Association, Bloomberg reported that coal use by five major Chinese coastal power plants reached 488,800 tons last week — that's twice as much as the recorded low on February 10 at the height of the country's lockdown.

The increased use of coal comes as many factories have restarted and need more electricity. Consultancy IHS Markit noted that more than 90% of markets, shops and malls and 70% of small- and medium-sized enterprises in China had reopened by mid-March as the country was fighting its way back to economic normality.

Given Chinese efforts to reboot production after the virus-related shutdown, it wasn't that much of a surprise to see the latest Purchasing Managers' Index (PMI) for the country regain some lost ground.

But the index, which was published Tuesday, came in well above expectations, hitting 52.0 for March, with the figure being provided by China's National Bureau of Statistics (NBS). That's way above the 35.7 recorded a month earlier and also way above the 44.8 forecast by economists.

Coal-fired plant in China
As China needs more electricty after the lockdown, many power plants are burning more coal againImage: picture-alliance/dpa/Mark

What the experts say

What are economists making of the pronounced jump?

Rajiv Biswas, APAC chief economist at IHS Markit, told DW "the key factor supporting an improving outlook for China during Q2 2020 and the second half of the year is that the number of new COVID-19 cases has fallen to very small numbers each day, which has allowed factories to resume operating in closer-to-normal conditions while the lockdown on households has been significantly relaxed, allowing consumers to resume spending in stores and restaurants."

China's NBS iself is striking a cautious note in analyzing its own data. "[The result] does not represent that our country's economic operations have returned to normal levels," the office commented, adding that "there remains relatively large pressure on enterprises' production."

NBS officials warned that many Chinese firms coming out of the lockdown have been facing tight funding. But the far bigger worry is an even steeper slump in demand as COVID-19 sends shockwaves through virtually all of the Asian nation's trading partners.

IHS Markit's Rajiv Biswas echoed those concerns. "With the world economy forecast to be in recession in 2020 due to the pandemic, China’s export sector is expected to be hit hard, remaining a drag on the overall growth outlook for 2020.

AFP news agency quoted OCBC Bank researcher Tommy Xie as saying that "we shouldn't read too much into the current sharp rebound." He argued that February was a really bad month for China because of the coronavirus threat, concluding "that any recovery from February … was kind of a done deal."

Analysts agree that the nation will face a global demand shock in April as more nations send their own economies into lockdown.

US-China trade spat lurking in the dark

But even when the virus-induced crisis is over globally, the Chinese economy is likely to be confronted with an older problem that's been off the radar temporarily. There are no indications whatsoever that the technology and trade conflict with the US will be buried once and for all.

That menace — plus the long-term fallout from COVID-19 — endanger China's growth targets. On Tuesday, the World Bank warned the nation could suffer a serious slump this year, meaning that growth could be down to 2.3% from 6.1% in 2019.

Consequently, some analysts argued it would be better for the Chinese central bank not to set a growth target for this year at all so as not to hinder adequate policy measures to keep people safe.

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