The Chinese economy has shown signs of a more robust rebound after lifting Covid restrictions. The manufacturing sector has revealed its most significant improvement over a decade, services activity increasing, and the housing market stabilizing.
The manufacturing sector purchasing managers’ index jumped to 52.6, its highest level since April 2012. A non-manufacturing indicator measuring activity in the services and construction sectors improved to 56.3. The figures add to other signs of an economic rebound and put policymakers in a good position ahead of next week’s National People’s Congress, where a new growth target will be unveiled.
The data shows that the recovery has exceeded the rebound to a stage comparable to the beginning of 2020 after lifting the national lockdown. However, in the future, it will be challenging to maintain this sustained pace with a slowdown in global growth. The Chinese economy’s upturn should be driven by domestic demand.
Other data has signaled a recovery in domestic demand. Home sales in China rose in February compared to the previous year, the first increase since June 2021. Road congestion in major cities has increased, subway ridership has returned to pre-pandemic levels, and restaurant and shopping mall spending has increased. China’s rebound has boosted manufacturing in other parts of Asia. PMIs in Thailand, Vietnam, and other Southeast Asian producers rose last month. In North Asia, the picture was more mixed, with factory activity in Japan falling, while Taiwan’s PMI rebounded but remained below 50.
This distinction characterizes upgrading the Chinese economy, which uses Southeast Asia as a production hub. China will no longer be the growth engine it has been for the world in the future. “China first” is the new leitmotif of the Beijing power. This implies support for higher value-added economic sectors directly in competition with large Western companies. The data has supported Chinese stocks and fueled a rally in commodities.
In terms of investment policy, this translates into an asset allocation favoring Chinese and South Asian stock markets at the expense of North Asia. Likely, the US and European markets will not benefit from this upturn. The upturn in the Chinese economy also means a strong return of commodity markets in a context of war that limits access to some of them. In short, there will be exported inflation for Westerners and the rest of the world. The consequences could be even more dramatic for Europe and Asia in direct competition for energy sources such as gas.