The Rabbit Rebound: PMIs rise sharply as China reopens

China Macro: Services PMIs bounce back sharply

The January PMIs published this week mark the start of China’s rebound following the rapid exit from Zero-Covid since last December. The initial effect of the U-turn in policy (from strict containment to laisses-faire) was a spiralling of Covid-19 cases adding to disruptions on the supply and demand side. This went hand in hand with a deepening of China’s slowdown, as illustrated by December PMIs and activity data. However, the picture has started to improve from January onwards. After three years of heavy restrictions, the Chinese were finally able again to travel freely to their hometowns and families, celebrating the Year of the Rabbit. This had an immediate impact, particularly on ‘fast moving’ services such as transport and tourism. All of this is also shown by the clear bounce in January PMIs, particularly those capturing the services sectors. After sharp declines in late 2022, the official non-manufacturing PMI published last Tuesday jumped by almost 13 points to a 7-month high of 54.4 in January (consensus: 52.0, December: 41.6). Caixin’s equivalent published today rose by almost five points to a five-month high of 52.9 (consensus: 51.0, December: 48.0).

… but the picture for manufacturing is improving as well

China’s manufacturing PMIs also edged up in January. although not as spectacular as their services counterparts,. Last Tuesday, the official manufacturing PMI came in at 50.1, as expected, more than three points higher than in Decemer. Caixin’s equivalent rose less than expected, by 0.2 point to 49.2 (consensus: 49.8, December: 49.0), remaining below the 50 mark separating expansion from contraction. The improvement in China’s manufacturing PMIs was broad-based, with both output and demand indicators firming. The export subindices also improved but stayed clearly below the 50 mark; this is in line with the global manufacturing PMI edging up somewhat in January, but staying in contraction mode. With both services and manifacuturing PMIs improving, the composite output indices from both NBS and Caixin are now back in positive territory for the first time since the summer of 2022. With no signs of overwhelming public health concerns and related disturbances following the LNY holiday, we think the PMI bounce fits well with our view of a staged recovery in domestic demand, with GDP growth strengthening from Q1-2023 onwards (see for more background our latest China monthly update, Goodbye Zero-Covid, Welcome Recovery). (Arjen van Dijkhuizen)