China's manufacturing sector shows surprise fall as exports collapse

China’s manufacturing sector eased in April, according to a widely-watched survey, as the Covid-19 pandemic caused global demand to slump.

The Caixin/Markit China General Manufacturing PMI nudged to contraction territory, easing to 49.4 in April from 50.1 in March. Anything above the neutral point of 50 is seen as growth.

The figure compared to official factory PMI data, also released on Thursday, which dipped from 52.0 to 50.8.

Analysts had expected the Caixin index to come in around 50.3, with the hard-hit sector continuing to improve as lockdown restrictions eased.

There was a rise in output in April, but total new work declined, however, dragged lower as export sales collapsed. New export business fell at the steepest rate since December 2008, as the pandemic shut business and kept people at home around the world.

Zhengsheng Zhong, chairman and chief economist at CEBM Group, said: “China’s economic recovery was hindered by shrinking foreign demand, despite the domestic epidemic being largely contained. While manufacturing output expanded at a faster clip, export orders plunged amid sluggish demand.

“Amid the second shockwave from the pandemic, the problems of low business confidence, shrinking employment and large inventories of industrial raw materials became more serious.”

TD Securities said: “Given the worsening trade picture, it is difficult to see the index remaining in expansion. Weakness in export and import orders highlights major risk, and the dramatic collapse in overseas demand is likely to be reflected in exports data next week.”

Miguel Chanco, senior Asia economist at Pantheon Macroeconomics, said: “The output index pulled back only, as firms continue to gamble that demand will revive soon. The new orders index dropped to essentially 50 from 52, implying that even domestic demand is struggling to live up to those hopes.”