China’s Comeback Story

Things are definitely looking up in China, the world’s No. 2 economy and the first to be ravaged by COVID-19. For example, a private gauge of China’s service-sector activity, released today, surged in June to its highest level in more than a decade, as the easing of virus-control measures in most parts of the country drove consumer demand. The Caixin China Services Purchasing Managers Index jumped to 58.4 in June from 55.0 in May. According to analysts, June’s reading came in far above the 50 mark that separates expansion from contraction, signaling rapid month-over-month recovery. While China’s economy is quickly picking up steam, the actual level of activity remains far below pre-virus levels. The Caixin survey numbers plunged in February to a historic low of 26.5, suggesting a dramatic pullback in activity in China’s service sector. The reading remained deep in contractionary territory for March and April before crawling back into expansion in May.
 
The Caixin’s recovery is just the latest in a string of data suggesting that the worst may be over for China’s economy. The government’s official index of nonmanufacturing activity, released Tuesday, jumped to a seven-month high in June, while the official manufacturing PMI survey reached a three-month high. Caixin and IHS Markit’s measure of manufacturing activity in June hit a six-month high.
 
These encouraging economic numbers come even as the country stamps out coronavirus flareups. Analysts say outbreaks, such as the one to hit Beijing’s largest wholesale food market in June, won’t unravel China’s economic recovery. Lian Ping, an economist at Zhixin Investment Research Institute told The Wall Street Journal that China should post year-over-year economic growth of more than 6% in the latter half of 2020—roughly in line with the 6.1% gross domestic product growth rate China reported in 2019.
 
Do encouraging signs out of China portend a rebound in Europe and later, the US? Analysts say the Chinese government’s swift shutdown of the economy helped limit the economic damage. In contrast, the US is seeing a surge in COVID-19 cases; the good news is that the latest outbreak seems less lethal than the first wave of coronavirus in the US.