Factory activity in China has been growing fastest in 9 years

Factory activity in China has been growing fastest in 9 years

Factory activity in China increased at the fastest pace in nearly a decade in July as a broader recovery from the coronavirus crisis was emerging in some of Asia's largest economies.

Caixin's manufacturing manager index, a private sector survey, exceeded expectations and reached 52.8 in July, the highest level in more than nine years. A number of more than 50 indicates an expansion compared to the previous month.

The reading reflects a recovery in activity after a sharp decline earlier this year when the country was closed due to the coronavirus pandemic. China's economy grew again in the second quarter and factory activity has increased in the past three months.

Separate surveys in South Korean and Japanese manufacturing in July also showed that countries have been performing best since February, though neither country has returned to growth.

In Japan, the PMI for manufacturing at Au Jibun Bank rose to 45.2. Respondents indicated that the improvement was supported by the lifting of the state of emergency in May after a decrease in coronavirus cases.

In South Korea, exports continued to slow down last month, reflecting early signs of a recovery in an economy that is considered an indicator of trade in the region.

Official data showed a 7 percent drop in exports last month compared to the same period last year, an improvement over declines of more than 20 percent in April and May.

The IHS Markit Manufacturing PMI for the country reached 46.9 after 43.4 in June.

South Korea's export-dependent economy was partially buffered by electronics exports, particularly computer chips, which continued to see solid demand and prices given a boom in online activities such as content streaming and gaming that fueled work from home.

China's factory activity has increased despite some local coronavirus outbreaks.

"Overall, the flare of the epidemic in some regions has not affected the improving manufacturing trend, which continued to recover as more disease control measures were lifted," said Wang Zhe, senior economist at Caixin Insight Group.

After the first annual decline in more than four decades at the beginning of the year, China's gross domestic product rose 3.2 percent in the second quarter compared to the same period last year. The return to growth was fueled by the country's government-backed industry. However, the data showed that retail sales continued to suffer.

China continues to face the poor performance of the global economy. According to the Caixin survey, export orders fell for the seventh time in a row.

"We warn that manufacturing PMIs may weaken in the coming months as recovery momentum worsens worldwide due to the protracted Covid-19 pandemic," said Ting Lu, chief economist at Nomura, China.

He also pointed to the "downward pressure on labor markets and the export sector".

Companies in China said they had cut staff in July to improve efficiency or replace non-leaving staff.