Chinese PMIs spark to life after covid restrictions lifted, but investors stay wary

on Jan 31, 2023
  • Chinese PMIs beat expectations after lifting of covid restrictions.
  • Investors and policymakers will remain cautious regarding prospects of an economic recovery.
  • Consumer confidence may be permanently dented as young buyers dry up in the real estate space.

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In the week running up to the new year, China dismantled the last of its major zero-covid policy restrictions, with the decision to scrap quarantine for all inbound travellers.

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However, tourists and business visitors would still need to be tested for covid within a stipulated time period. 

With the removal of quotas on foreign flights, China is just re-emerging from three years of on-again, off-again lockdowns, amid rising public tensions.

The Purchasing Managers’ Index (PMI) provides the first real snapshot of the state of the economy, and in particular the country’s manufacturing sector after industrial units were decimated in the months and years prior.

General PMI

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The measure which captures the health of both manufacturing and service sector units on the mainland, surged to 52.9, marking the highest reading since June 2022. This suggests an improvement in business operations and the broader climate.

The rapid increase was expected, but its magnitude was also surprising.

During the previous month, the measure was well below 50 at 42.6. had forecast a rise to the still-contractionary 46.   

Despite the optimism, markets are aware that demand remains largely subdued, and it is unlikely that growth prospects will be durably positive until consumer sentiment recovers, and significant capital expenditure is put in place.

A Bloomberg report noted that share prices of property companies, a key indicator of the health of the Chinese industry and consumer, continued to decline in a real estate sector flooded with depreciating assets.

Consumer confidence may be permanently dented as young buyers dry up in the real estate space, and residential sales fell 14% year-on-year.

Manufacturing PMI 

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The factory sector also rebounded more than anticipated, rising to 50.1, just scraping into expansionary territory, marking the first instance of growth since October 2022.

With the removal of zero covid policies and mending of some supply chains, the manufacturing sector outdid consensus estimates of 49.8.

New orders which languished at 43.9 in December, accelerated to 50.9 on short-term Chinese New Year demand, driving the increase.

Non-manufacturing PMI

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Sentiment among service-led businesses improved dramatically to 54.4, well above contractionary forecasts which hovered in the 47-48 range. This also marked the healthiest expansion since June 2022.

The boost to the sector was driven by the resumption of tourism, business travel and the state’s announced measures to facilitate speedy inbound visas.

Source: China NBS

Industrial profits

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On an annual basis, Chinese industrial firms saw profits decline by 4%, as against the cumulative 3.6% decline through the previous 11 months.  

Key casualties were private sector firms that struggled under the prolonged covid restrictions and ongoing investment uncertainty.


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Although the rise in the country’s PMIs is welcome, the gains were not wholly unexpected given the pressure that the economy has been under since 2020.

Crucially, the prolonged stoppages indicate that any lasting recovery would require significant capital outlay and long gestation periods.

While the government has announced that it would be rolling out measures such as fiscal lines to support the recovery, it is still too early to gauge how effectively the economy will respond.

In all likelihood, the Chinese manufacturing sector will be unable to recover to its earlier heights, and may soon find itself stumbling amid global recessionary concerns grow and a surge in reporting of fresh covid cases.


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