China’s Manufacturing Activity Contracts in April, Putting Pressure on Policymakers

China’s official data showed that the country’s manufacturing activity decreased unexpectedly in April, creating pressure on policymakers to boost the economy. The manufacturing purchasing managers’ index (PMI) fell to 49.2 in April from 51.9 in March, indicating a contraction. This is below the 50-point mark that separates expansion and contraction in activity on a monthly basis. The figure missed the expectations of economists who predicted 51.4 in a Reuters poll.

Effects of Covid-19 on the Manufacturing Sector

China’s economy experienced a post-Covid lift-off, thanks to robust services consumption. However, the manufacturing sector has been lagging behind due to weak global growth. Additionally, slowing prices and surging bank savings are raising doubts about demand. The manufacturing industry employs about 18% of China’s workforce and is under pressure due to slack global demand. Some exporters have frozen investments, and some have cut labor costs in response.

Government’s Efforts to Boost Trade and Employment

To boost trade and employment, the government has unveiled plans that include supporting auto exports, facilitating visas for overseas businesspeople, and providing subsidies to firms that hire college graduates. The cabinet introduced these plans last week.

Challenges in the Property Sector

Confidence in the property sector, which has been a pillar of China’s growth for years, remains fragile. Several crises since mid-2020 have included developers’ debt defaults and stalled construction of pre-sold housing projects. Although policy support measures have helped improve conditions in the industry, pockets of weakness remain, and a full recovery appears to be some way off.

In conclusion, the unexpected contraction in China’s manufacturing activity in April and the challenges in the property sector are putting pressure on policymakers to boost the economy. Although the government has introduced plans to boost trade and employment, the manufacturing industry remains under pressure due to slack global demand. Policymakers will likely continue their supportive fiscal and monetary policies in Q2, given the mixed economic signals.