Chinese business activity rebounds in January after COVID pivot - PMI

By Ambar Warrick

Investing.com -- Chinese business activity grew past expectations in January, government data showed on Tuesday, as the recent relaxing of anti-COVID measures and the Lunar New Year holiday both helped break a three-month slump.

China’s manufacturing purchasing managers index (PMI) grew 50.1 in January, higher than expectations of 49.8 and December’s reading of 47.0. A reading above 50 indicates contraction.

The country’s massive services sector also rebounded sharply from a three-month decline, with the non-manufacturing PMI advancing to a six-month high of 54.4, higher than expectations of 52.0 and well above December’s reading of 41.6.

This helped the Chinese composite PMI rebound to 52.9 in January from 42.6 in the prior month, with the reading now back comfortably in expansion territory.

The better-than-expected data indicates that the world’s second-largest economy is clearly on a path to recovery from COVID-induced lulls last year, particularly after it marked a clear pivot away from its strict zero-COVID policy earlier in January. Recent economic growth data also showed that China's GDP grew more than expected in the fourth quarter.

The country relaxed most anti-COVID measures and reopened its borders after three years of intermittent lockdowns ground economic activity to a halt.

The week-long Lunar New Year holiday also factored into the positive readings for January, given that it was the first Lunar holiday in three years without any COVID restrictions. State media reports showed that economic domestic travel and retail spending rebounded sharply during the week.

The government also recently reiterated that it plans to shore up local economic growth with more spending measures.

But the country still faces some headwinds in the near-term, which have cast doubts over the timing of a bigger economic recovery. COVID-19 cases are increasing at close to record-high levels, which could potentially disrupt activity.

Analysts also warned that global economic headwinds, including a potential U.S. recession and increased trade restrictions on Chinese companies, could hamper a potential recovery this year.

Still, the prospect of an eventual Chinese economic recovery in 2023 has spurred increased capital flows into local markets in recent months.